Open banking is a data-sharing ecosystem that promotes new financial application and product development. Open bank data provides non-bank financial institutions access to customer account data and the payment infrastructure, using application programming interfaces (APIs). Open Banking spurs financial innovations and reshapes the banking industry by facilitating networking and data sharing across banks, consumers, financial institutions, and third-party service providers. It is the foundation of customer-centric banking and superior customer experience. Long-established financial institutions like banks need to embrace open banking and cooperate with fintech companies to improve their financial services and generate new revenue streams.
Why is Open Banking important?
Banks, regulators, and startups are shifting to data-driven and open banking driven platforms because more and more consumers have multiple bank, investment or loan accounts. To get a holistic overview of their financial data, they need to access many banking platforms. Open Banking allows consumers not only keep their data about spending and earnings in one place but also offers new ways to pay and accept payments using third-party services providers.
Privacy
Open banking ensures the same level of security and privacy for financial services. Third parties and banks use rigorous privacy and security measures to protect and encrypt confidential data. When it comes to permission, Open Banking explains how and in what cases financial organizations can share data. Accordingly, customers can decide whether to give consent or not to use their data.
Regulation in Europe
The European Union has designed a legal framework for the open banking ecosystem. To regulate payment services and payment service providers in the European Union (EU) and European Economic Area (EEA), Payment Service Directive 2 (PSD2) was introduced.
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