What is Open Banking and How Does It Shape the Financial World?

Regardless of whether your income is minimum wage or you are a top business person, you definitely work with more than one bank these days. While your salary is deposited into a separate account, your various earnings are generally deposited into a separate account, you make your investments in a separate account, and you share credit cards from many banks. Instead of using the applications of all banks individually on your smartphone, you can now benefit from the advantages of open banking.

What is open banking?

Thanks to open banking technology, one of the greatest innovations in financial technology, you can achieve a practical result in banking with great advantage. You have the opportunity to do all your banking transactions in a single mobile banking application.

Open Banking is considered one of the largest digital transformation steps in the financial sector. The foundation stone was laid with the Payment Services Directive 2 (PSD2), which was passed in the European Parliament in 2015. While open banking is basically one of the most important steps in financial technology; This is a banking application based on a bank customer sharing their financial data in any bank with various banks and financial institutions via an API.

This application allows you to carry out financial transactions of various banks through any mobile banking application or the internet branch of any bank. As is well known, Open Banking is a system that has been used by almost all banks and financial companies in Turkey in recent years.

For example, if you install the application of any private bank, you can carry out your credit card, account, investment and trading transactions with that bank. The bank may offer you to define credit cards and bank accounts from many different banks within the application and thus use them in a single application. Although the system is known as API banking, a great advantage arises as all financial transactions are carried out on a single platform.

Impact of the open banking system in the financial world

Open banking has been one of the most discussed topics in banking and finance in recent years. While this system offers a huge advantage to financial technology companies, it also helps banks and financial technology institutions work better together.

Because credit cards, which have been around in the banking sector for around 70 years, and the mobile banking revolution of the last 15 years, are starting to gain a stronger structure with open banking, which continues its transformation and digital revolution.

The banking and finance sector faced many major changes after the global crisis of 2008. Banks are seeking to offer new products and services by entering into financial technology agreements with many companies to create systems that are safer, faster and provide benefits to their customers.

The increased need for mobile banking, especially in times like the Corona Virus pandemic, gave us the need to focus more on these technologies. Open Banking offers the ability to easily process all banking transactions and transactions from all banks in a single application. In this way, in the era of digital banking, the customer, actually the bank participant can do all his banking transactions through the bank’s mobile application that he likes the most.

In addition, at this point you can create a digital account by signing up for a mobile application of a bank where you do not have an account or credit card, or you can also use it without an account. Some banks can even implement this arrangement with non-bank mobile applications and financial company mobile applications.

As already mentioned, open banking in the banking sector, especially in European countries, became a mandatory approach with law rather than an initiative after PSD2, which was put on the agenda in the European Parliament in 2015. Later, by a new decision, this scope was brought into a structure that can be used worldwide, with the exception of the countries of the European continent. In this way, services such as providing account information, confirming the presence of money in the account or creating a payment order become active.

Advantages of open banking in the banking system

In the financial world, open banking has brought many different benefits, particularly to banks. First, for example, banks began to attract new customers by using fewer resources. In other words, the bank had the chance to acquire customers through another bank without using its own mobile application or advertising.

In addition, customers achieve increasingly deeper and more beneficial results when using the services offered by the bank. Open banking has enabled banks to better promote products and services to new and old users and to deliver them in less time.

Instead of performing separate transactions in each banking application, the user can perform transactions from all banks in a single banking application. In this case, for example, you can pay your phone bill with a Bank A credit card in Bank A’s application, but your Internet bill with Bank B’s account card in the same application.

When using banking applications, company entries are made for customer information and transactions. In this way, banking integrations between different systems can be achieved in a more practical way. Also, since banks need mobile applications for this system, they can also make money from these mobile applications. This is because the mobile applications used can provide stronger and more meaningful promotions and advertising than many other media.

What does open banking brings to the financial technology market?

The biggest resource that the banking and finance sector benefits from today is of course the financial technology sector. In fact, this is why many different companies, small and large, continue to develop financial technologies around the world.

In this sense, financial technologies continue to achieve many advances thanks to open banking, a very important step in financial technology. In this system, financial technologies can more easily benefit from banking infrastructures and obtain analysis and information about customers much more easily.

Small towns in particular benefit more easily from this situation with lower costs. While financial technology companies offer solutions to consumers much faster thanks to the new generation products and services they develop, customers’ lives are actually becoming easier in this regard.

Companies that develop technologies for banks can easily use these technologies to reach a larger audience and earn high profits when they meet the needs of banks and customers. In addition, it is possible to establish new business models in the services offered in this sector without investing large amounts of cash and resources.

How trustworthy is Open Banking?

While many benefits are cited when open banking is mentioned, some people may think of security concerns due to the details of data sharing. However, as is well known, there are also state regulatory technologies behind the financial technologies developed for banking and finance.

In this sense, open banking creates a very secure system with the necessary security measures. Governments continue to monitor the open banking system, i.e. H. As long as there is BRSA supervision in Turkey, API banking will continue to be used safely.

Today, in our country, with a model made available to banks by the Central Bank of the Republic of Turkey from December 1, 2022, both state banks and many private banks have offered this technology to their customers. In this way, banks have provided consumers with speed, practicality and more convenient access in the face of increasing industry competition, while bringing their services to a higher and fairer level.

See you in the next post,

Anil UZUN