‘Open banking’ is a term bandied about a lot, but what does it actually mean?
Well, it covers embedded, contextual and frictionless payments, covers the complex web of banking services that goes far beyond that of just a payment or a deposit account. There’s asset and fund management, market makers and brokers, investment banking and wealth management, trading, investing, saving, payments, credit, mortgages, insurance, assurance and, oh yes, retail banking.
The world of digital which combines mobile, social, internet, open platforms, marketplaces, plug and play code and more, has enabled thousands of specialist firms to remove friction from bank processes.
The Finanser, in his piece on ‘the true meaning of Open Banking‘ gives us some great examples and insights below;
Let’s talk Stripe, who launched seven lines of code in 2011 that is now worth over $20 billion. Stripe focused on one key area – merchant checkout online – and made it so simple that dropping their code into my app is a no-brainer. That’s why Apple Pay, Uber, Kickstarter and more use Stripe for their in-app checkout processing.
But that’s just for payment, and too often people mistake frictionless payments for frictionless banking. Frictionless banking is built of thousands of processes, of which merchant checkout online is just one. However, the interesting thing is the thousands of start-ups, often started up by former bankers involved in these processes, who are automating all of the other processes.
When we look at today’s FinTech start-up – of which some are quite mature – marketplace, there are 1000s of start-ups doing one thing brilliantly well across the whole gamut of financial services. In fact Philippe Gelis, co-founder and CEO of FX firm Kantox, wrote about this very thing four years ago on my blog but, like Banking-as-a-Service, it can take years for these visions to become reality. What Philippe said back then:
All services (investing, trading & brokerage; wealth management; loans, credit & mortgages; crowdfunding; insurance; crypto-currencies; payments; remittances & FX …) will be provided by third parties through API, including old-school banks, financial institutions and fintech companies.
That’s what Open Banking is all about.
Customers should not have to go and find the 1000s of APIs in the Open Banking marketplace to access frictionless payments, trading, cryptocurrencies, foreign exchange. What if there was a single place where customers could access all this frictionless services?
Banking as a Service (BaaS) means that any module, component or function of a bank can be application packaged and network enabled as a banking widget. The balance statement widget; the payments transaction widget; the loan application widget; and so on.
This is the most likely path for the future of finance and banking services. With open banking and BaaS, customers should be able to access a myriad of different services in a frictionless way.
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