What is Open Banking?
A financial framework that lets approved third-party providers access customers’ bank data through secure APIs. This model replaces isolated bank systems with interconnected platforms, boosting transparency, competition, and new service offerings.
How It Works
Traditional vs. Open:
In Traditional banking, each institution keeps data in its own silo.
Open banking standardizes data formats and security protocols so external apps can connect seamlessly.
Types of API Access
Data APIs – Let apps read your account balance and transaction history, but not change anything.
Transaction APIs – Allow apps to initiate payments, transfers, or direct debits on your behalf.
Product APIs – Provide information on bank products—like interest rates or fees—so comparison tools can show your best options.
Its Importance
Consumers can choose services tailored to their needs (e.g., personalized loan offers based on real-time income data).
Fintech startups can enter markets without building full banking infrastructure, spurring new products.
Lenders can use transaction data to assess creditworthiness for individuals lacking traditional credit histories.
Proper consent management and strong security standards are essential to protect privacy; regulators oversee implementation to balance innovation and safety.
