Open Banking has the potential to restructure the competitive landscape and consumer experience, not only of the banking industry, but of every individual and company that interacts with it.
By allowing access and control of consumer banking and financial accounts through third party application programming interfaces (APIs), Open Banking increases the potential for promising improvements.
The EU has taken the lead on Open Banking, believing it will increase competition and cut bank fees. New Zealand has favoured an industry-led development. Speaking earlier this year as Payments NZ – owned by the major banks – unveiled an API Centre to manage the move to greater openness in payments and banking, Commerce Minister Kris Faafoi defended his decision to let the banking and payments industry take the lead instead of passing Open Banking laws.
The end result of Open Banking could be that, instead of having to rely on banks’ own internet banking platforms, people could use money management and payment apps developed by third-party technology companies. Potentially that might result in banks becoming in effect wholesale suppliers of accounts and services.
With Open Banking, APIs can use customer’s shared data to compare a customer’s accounts and transaction history to a range of financial service options. It could also – importantly – allow lenders to obtain a more accurate picture of a consumer’s financial situation and risk levels when considering loan terms.
It could even provide a more reliable indication of a potential house buyer’s ability to service a loan than current mortgage lending guidelines. Open banking might also save SMEs time and help fraud detection companies monitor customer accounts better and identify problems sooner.
Credisense was created to allow organisations of all sizes to implement world-leading credit digitisation and automation software, at a fair price. And because we focus on the end-to-end credit lifecycle – arguably one of the key elements in business success, we have been able to digitise and reduce the risk associated with offering credit. We can only encourage the growth of Open Banking.
The Reserve Bank of NZ, in a recent online article, noted that Open Banking was still in its infancy in New Zealand. But it noted the creation of a standardised and secure framework for sharing bank customer data with trusted providers would allow the providers to offer a wide range of new services, improving the efficiency with which banking resources are allocated, and reduce the risk of customers over-borrowing.
The Reserve Bank is monitoring the development of Open Banking and says it will act to minimise potential threats to the soundness and efficiency of the financial system. But it also says it will amend regulations that unnecessarily hinder the development of Open Banking.
A recent banking survey showed a mere six percent of customers switched banks in the past year and the big four Australian-owned banks in New Zealand still command the major share of the market.
Lending requirements and evaluation metrics need to move with the times and it’s crucial that credit providers equip themselves with innovative solutions to enhance their decision-making criteria.