Open banking benefits for consumers

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Have you ever been transferred to your banking app to complete a transaction online? That’s open banking. Have you ever used a budgeting tool that connected all of your accounts in one place? That’s open banking, too. 

Open banking is an innovative framework that allows banks to share data with licensed fintech companies, like Noda, under consumer consent. They do so via open Application Programming Interfaces (APIs), sets of defined rules that enable software to communicate with each other. 

In Europe, open banking is embedded into legislation. The groundbreaking PSD2, enforced in 2018, mandated European banks to open their API data to authorised fintech companies. To access the data, fintechs need to obtain a specific license. 

Benefits of open banking 

There are four key advantages of open banking for consumers: better payments, personal finance tools, tailored products and control over data. Let’s take a look at these benefits in more detail. 

Better payments

The self-evident benefit of open banking is a smoother, more enjoyable payment experience. Instead of having to insert your payment details manually, the open banking functionality redirects you to a trusted banking app and lets you pay directly from your bank account. 

It saves time and effort and is a more secure way of paying online. Under PSD2, for example, multi-factor verification is a legal requirement to authorise open banking payments. 

The better payment experience is enabled by platforms like Noda. Having a PISP license, Noda works with online merchants who want to simplify their payments with the open banking functionality. After a consumer initiates the payment, Noda communicates with the issuing bank via regulated APIs. 

Personal finance tools 

Another license a fintech can obtain to gain open banking functionality is AISP. It allows them to access read-only information with consumer consent but not to initiate payments like PISPs.

AISP fintechs gather data from multiple banks or financial institutions. Think of budgeting apps and personal finance tools that bring all of your accounts in one place. Loan providers often use AISPs to quickly access an individual’s credit history or verify their income. 

Like PISPs, AISP fintechs access data via open APIs. After a user request, an AISP app will collect information and consolidate it into a single piece. For consumers, this means better and more efficient financial management.

Tailored financial products and services 

Open banking is built on the core principle of data sharing. With open banking, fintech companies can gain a deeper understanding of customers’ behavioural patterns. This results in highly personalised financial products and services. 

For example, budgeting apps can use API data to identify spending patterns and deliver tailored savings recommendations. This level of personalisation can significantly improve the overall financial experience for consumers. 

Control over financial data 

Arguably, the best thing about open banking is that it’s not imposed. Consumers hold the ultimate control as the data sharing cannot happen without their explicit consent. 

Consumers choose which apps and websites they want to share data with, so they are always in charge. They decide what information a firm can access and for how long. Hence, consumers have the ultimate power in the open banking ecosystem. 

For instance, some individuals may be more comfortable with AISP rather than PISP services. In that instance, they should simply only grant consent to those providers they trust.

Consumers can also stop giving access to their data. To do this, they would need to go to the app or website and withdraw their consent. They can also inform their bank that they no longer want the company to access their data.

Future of open banking in Europe

So far, Europe has been setting the pace in open banking from the regulatory perspective. In June 2023, the European Commission released drafts for the new directives, PSD3 & PSR1. The proposals, which won’t be finalised until late 2024, build on the core PSD2 principles of data sharing. They aim to improve API quality and strengthen security.

This transparent regulatory environment is driving wider open banking implementation in Europe. There were at least 355 authorised open banking providers in EEA in the second quarter of 2023, most of them obtaining both AISP and PISP licenses. Meanwhile, the open banking adoption is expected to more than double across European countries by 2027. 

“We see open banking as a permanent shift in the financial services landscape,” said Nikola Tchakarov, head of market expansion at Noda. “Looking ahead, we anticipate that the market will continue to evolve with more personalised products, increased consumer control over data, and further innovation in payment processing,” he added.

The next step from open banking, in theory, is open finance. In open finance, it’s not only banks that share data but a whole range of other financial companies: investment firms, wealth managers, pension funds, insurance brokers, and lenders. 

A notable example of open finance regulation and adoption has been Brazil. In March 2022, the country launched its final open finance implementation phase, including investments, insurance, and pension data into the infrastructure. 

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Final thoughts 

Open banking is not just a fleeting market trend – it’s revolutionising the financial industry. Previously, the banks held a monopoly over consumer data. Now, it’s up to consumers to decide whether they want to share their information with licensed fintech companies. If they do so, they get a number of benefits: better payments, efficient personal finance tools and more tailored financial experience. 

Around the world, consumers have started to realise the exciting possibilities offered by open banking. “From the client’s perspective, there is a growing expectation for convenience, security, and speed,” said  Tchakarov. “Customers seek solutions that simplify their financial lives and provide value beyond traditional banking services.”

Whether the ecosystem will shift towards open finance will depend on how the regulation evolves. This could lead to greater financial empowerment as consumers gain more control and insight.