A recent publication by PricewaterhouseCoopers defined Open Banking as a blanket financial services (FS) term used to describe the use of open technologies by third-party providers (TPPs) to build services and applications around financial institutions. The above means that TPPs can access and use standardised partner bank data to provide more open, transparent and competitive banking services.
The concept of open banking is a subset of the open innovation concept, a term promoted by Henry Chesbrough, referring to shifts in attitudes towards the issue of data ownership and other concepts such as unrestricted data movement.
How Does Open Banking Work?
Open banking has become a driving force of innovation in the banking industry. By relying on networks instead of silos financial services, customers can securely share their financial data with other financial institutions, thereby unlocking more effective and efficient finical services.
What are its benefits?
Open banking is also helping third-party financial service providers create new types of financial services and products leveraging open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions. We have recently seen startups and challenger banks spring upon this concept. An area that has been dramatically impacted is the lending space, where lenders can access different Customer data siloed across other organisations to make better scoring decisions.
The non-financial services industries are not left out as other industries can now embed financial services into their offerings to their customer.
In most African countries, where mobile phone penetration is higher than the coverage of traditional banking institutions, open banking offers the continent an opportunity to reduce the number of its unbanked population significantly.
Challenges to Adoption
The road to a completely open banking system hasn’t been without its challenges; some of the biggest are:
Adoptions: most financial institutions are lagging in adopting a fully open banking ecosystem.
Legacy systems: Because of the slow pace of adoption, some of the player-run of methods are now obsolete
Lack of connectivity standards: there is a great need for standardisation of processes, protocols and Application Programming Interface (API) that enable connection and exchange of data
Even though various pockets of stakeholders are coming to an agreement to solve some of these problems, there is still more work to build the future of finance.
Ceva Software Ltd is helping banks across Africa implement open banking systems and practises per the Central bank regulations of their country and the Uk open banking standards. We are also at the forefront of this movement, helping standardise frameworks and APIs to make it easier for wide collaboration. Ceva is galvanising and supporting open innovation at various levels, industries and countries through our network of partners.
If you want to learn more about some of our open banking projects or looking for a partner that will help you launch a next-gen solution, talk to us.
Image credit: pavestoneslegal.com
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