In our evolving financial industry, open banking has emerged as a new phenomenon with a transformative force.
An accomplished finance specialist, Farnoush Farsiar, is also extremely passionate about this new banking technology in 2023. She believes that open banking will impact how financial activities will be carried out.
But why is there so much noise about it?
Well, open banking’s growing popularity is owed to the way it has bridged the gap between traditional banking practices and digital technology.
In this blog, we will look at the far-reaching impact of this technology and see what Farnoush Farsiar predicts about the future of open banking.
Let’s get started.
Understanding Open Banking: Principles and Concepts
According to Farnoush Farsiar, the concept of open banking revolves around enabling the secure sharing of financial data between different third parties through Application Programming Interfaces (APIs). These third parties may include developers, businesses, and consumers.
Using APIs ensures that your financial information, like transaction data and account details, is securely exchanged between service providers.
The user’s explicit consent is also taken before the exchange of such information. Some of the core principles of open banking include:
1. Data Transparency and Accessibility
Banks and financial institutions provide access to customers’ financial information to third parties to improve their services. This makes financial data transparent and accessible.
2. Customer Consent
This principle is crucial to ensure the success of open banking platforms. Customers should always have the authority to allow or reject access to their financial data by third-party providers.
It builds a healthy relationship of trust between financial institutions and customers.
3. Security of Personal Data
Once the users consent to sharing their data, authorities must also ensure the protection of the data.
For this, financial institutions and third-party providers should ensure they have data protection regulations to ensure only ethical access to user data.
4. Customer Benefit
Card fees in the UK have increased by 13% since 2015, which is a lot and can be lowered.
Open banking works on this exact principle: customer benefit. The authorities and related organizations are working on ways to introduce the cheapest solution possible to cater to the problem of increased card fees.
5. Digital and Financial Inclusivity
Open banking platforms also ensure that people comfortably enjoy the benefits of this technology, regardless of their status, profession, race, or region.
Impact of Implementing Open Banking
Farnoush Farsiar believes that one of the key factors adding to the growth of open banking is regulatory changes in the European Union. The Payment Services Directive (PSD2 – more details) has directed banks to disclose their data to third parties after getting consent from their customers.
Thus, countries like the UK have started implementing frameworks that promote open banking, which will have far-reaching effects.
To understand the impacts of this new banking technology, we need to look at its benefits, challenges, and concerns.
Open banking has changed the way we manage finances. It has allowed seamless access to financial data through one platform. This has led to increased personal financial management (PFM) apps that will enable consumers to budget and track their expenditures.
Such innovations will empower consumers to make better-informed decisions, enhancing the consumer experience.
Customer data shared with third-party providers can also be used to create more personalized user experiences. It can also lead to new financial products coming out in the market.
However, implementing open banking frameworks poses challenges, like ensuring data security and privacy. Sharing sensitive user information to third parties raises the risk of data breaches.
While regulations ensure data protection, implementing set standards also demands significant effort and resources. This adds to the complexity of the implementation of such frameworks.
Integrating various systems and ensuring data flow between parties also requires technical skills. Despite all efforts to ensure compatibility between systems, some potential disruptions in the network may still be inevitable.
There is also a list of concerns of people regarding open banking. The most prominent one is a data breach or misuse. Access to people’s sensitive data could lead to identity theft or fraud, making users more vulnerable to online scams.
This is why there is also a great deal of need for more awareness about the responsible and safe use of technology among consumers.
Farnoush Farsiar’s Predictions for The Future
Impact on Financial Services and Consumers
Looking at the current landscape of the financial industry’s implementation of open banking frameworks, as a renowned finance specialist Farnoush Farsiar has made predictions for its future.
She believes this modern banking form can foster innovation and lead to the production of more personalized financial services. It can also offer users more help with budgeting their finances and thus make better financial decisions.
Farnoush Farsiar further says that open banking can aid financially vulnerable individuals. Its services can help consumers manage finances amid rising living costs.
Potential for Business and Industry Transformation
Farnoush Farsiar has also expressed that open banking could assist SMEs in the UK by allowing them to manage their finances effectively. It will also bring them valuable insights for enhancing their predictive abilities.
It could also become a prerequisite for any consumer or SME debt financing. This is due to its ability to provide real-time clarity about a borrower’s financial situation.
Farsiar predicts that open banking will also add to the integration of sustainable finance principles. Financial data will help assess the environmental impact of investments, enabling consumers to make choices based on their values.
She says high competition and focus on customer benefit as its core principles could also lead to lower payment costs, adding to its customer benefits.
As competition increases in the market, it will also give consumers greater choice over which financial methods and products to use. This will also improve the quality of services provided to users.
Farnoush Farsiar’s predictions highlight open banking’s potential for bringing innovation to the financial industry globally. As it evolves, this modern banking solution will encourage collaboration and personalization, enhance customer experiences, and bring new technologies.
That’s all on the present and future of open banking, according to Farnoush Farsiar.