How to Use Accounts Payable Turnover Ratio to Bargain with Buyers
It is a myth that financial ratios are to be used only by investors and analysts in deriving a fair valuation for the firm. In reality, financial ratios are used by a wide variety of people for a wide variety of reasons. A common usage is by the sales department. Usually sales departments in large […]
Sources of Revenue: Broadcasting Rights
The consistent generation of revenue is important for the success of any sports league. If the organizers of any of these leagues have to spend a large amount of time and resources to collect revenues, then they will not be able to focus on organizing the game. This is where the broadcasting rights come into […]
How Should Companies Communicate With Wall Street?
Wall Street is very sensitive to communication. Every quarter, executives from top companies communicate their results to the street. Based on the content of this communication, the market reacts. Sometimes the market turns volatile. However, at other times the market remains stable. Apart from the content being communicated, the manner in which it is also […]
Understanding Tax Terminology: Tax Base
Many students often find tax policy confusing. This is probably because it uses complex terms. The tax base is one such term that is often used in tax literature. The meaning of this term is often not completely understood by tax students. This creates further confusion. In this article, we will clarify the meaning of […]
Availability Bias in Behavioural Investing
All of us have seen movies or have read novels wherein there are several witnesses who are describing the same crime scene. However, each of them describes the scene in different ways. This is because their experiences are colored with their own thought processes. This makes different people look at the same situation in different […]
The field of commercial banking is undergoing many technological changes simultaneously. Open banking is one such technological change. Open banking is unique in the sense that this change has been initiated by regulators in most parts of the world.
Generally, technological changes are adopted by commercial banks themselves with a view to increasing their productivity or their competitive advantage. Hence, such changes are often voluntary. On the other hand, since open banking is required by regulatory agencies, it is mandatory in many parts of the world.
In this article, we will have a closer look at the concept of open banking as well as its impact on corporations in particular.
It has traditionally been the responsibility of commercial banks to guard the customer data that they have on hand. Hence, any sort of sharing of data was traditionally prohibited. This has changed with the introduction of open banking.
Open banking enables effortless and secure sharing of data amongst various regulated service providers. This means that if another entity is registered with the regulator, commercial banks can use technological tools such as APIs in order to facilitate the easy and effortless transfer of data with such entities.
The objective of open banking is to facilitate faster and more secure services for corporate customers by facilitating the effortless transfer of data between commercial banks.
Open banking is helpful to corporate customers since it provides them with more alternatives. There are many fintech companies that are creating top-notch services in the front end. The user interfaces are very friendly and they are using analytics to target better customers. However, they are not able to fulfill many transactions faster because of the lack of information.
Open banking allows different banking entities to operate as one integrated system. This means that there is a free flow of information between different entities.
Open banking has become extremely popular amongst corporations as well as amongst commercial banks because of the several benefits that it offers. Some of the main benefits have been mentioned below:
Hence, from a customer’s point of view, there is very little difference in whether the service is being directed by the bank or whether there is a third party involved.
Corporate customers get the benefit of a technologically advanced interface provided by fintech companies whereas, at the same time, the backend transactions are managed by the robust information systems of commercial banks.
Hence, this becomes an additional source of revenue for the commercial bank. Also, since this source of revenue is not based on interest income, it helps banks diversify their earnings to a large extent.
Hence, the amount of paperwork is drastically reduced as well the time taken to provide the service is also cut down significantly.
There are always two sides to every technological advancement and open banking is no exception. There are many disadvantages associated with it. A couple of the important ones have been listed below:
However, the higher transmission of sensitive data creates a possibility that such data may be hacked. This can be very dangerous and expensive since the hacking of banking data can cause significant damage in monetary terms.
It is common for commercial banks and other financial entities to form a chain of intermediaries when open banking transactions are being conducted.
Hence, the data may be passed from one entity to another. These entities may lie across international borders and hence may be subject to different jurisdictions as well. This creates a very complicated scenario because if the data is compromised at any point in the chain, there is always ambiguity about who is liable for the data leak. Since the liability is not known, it becomes difficult to compensate customers.
The bottom line is that open banking is a relatively nascent technology that has grown rapidly in the recent past. Since this technology is being mandated by regulators in many parts of the world, it is likely to grow even faster in the future.
It becomes important for commercial banks to be the frontrunners in the adoption of this technology. This is because the commercial banks who make an active attempt to adapt such technologies are likely to gain more market share than banks that resist it.
Your email address will not be published. Required fields are marked *
