In Europe, competition within the banking industry has been lackluster due to an inadequate amount of banks for people to choose from. People generally chose to work with more well-known banks and stuck to them for decades. Open banking revolutionized this situation, by changing the way in which data is shared in the banking ecosystem, always with the authorization of the customer.
Technology plays an important role in this new landscape. And open banking startups too.
Since every new idea brings challenges, open banking startups have created solutions to ease the process―all to drive innovation and create a safe, reliable, and efficient banking experience for everyone. In this article, you will find some of the most interesting ones.
But first, what is Open Banking?
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Open Banking is a secure way for people to use financial products and services from regulated apps and websites. The concept of banking, which has risen in popularity over the past few years, connects third-party organizations and other banking institutions through APIs, allowing these entities to access banking transactions and other banking data. In short, open banking is made possible through the use of technology, regulations, and services, which allow open banking startups and other corporations to create new banking services and business models, essentially enhancing the capabilities of the banking industry.
This new way of banking grew tremendously during the COVID-19 pandemic. Competition within the banking industry also grew significantly. Now, everything is online and banks are adapting to the changing landscape and the capabilities of open banking allow for faster and more secure transactions that can be done anywhere in the world.
Recent Trends in Open Banking
Open banking is poised to drive innovation, creating new opportunities and changing how people bank. Open banking is the next frontier in financial services. In fact, in the UK, the number of open banking users increased from one million in 2020, to three million in 2021. In South Korea, there are approximately 20 million users of this technology. Open banking is expected to penetrate the US market and other countries in the near future.
Number of open banking users worldwide in 2020 with forecasts from 2021 to 2024, by region, in millions. Source: Statista.
Open banking grew increasingly popular because of the several capabilities it offers to users. Among merchants, open banking can lower the costs of online transactions. It eliminates the risk of cash mishandling, making e-commerce a more pleasant experience. Today, more and more businesses and consumers are adopting this new technology because of its time-efficient and low-cost features. As a result, many open banking startups have already created solutions to continue driving innovation in the world of fintech.
Privacy Concerns and Regulations
New technologies bring excitement and different opportunities for innovation, but it also brings concerns of financial security and the possibility of data breaches. Last year, a US fintech company suffered security breaches that exposed the personal data of over 7.5 million users. This security breach of this volume presented concerns to many people. How can a fintech company of this size experience a breach this big?
Without regulations, anything could happen and even the most reputable companies can get phished. Alastair Johnson, CEO at Nuggets said open banking is fantastic, but, as any new initiative, it is going to be dangerous, and criminal groups will see new opportunities in it.
Fortunately, many regulations and legislations have already been implemented to keep personal data safe and secure. The PSD2 legislation in Europe enforces data protection and privacy standards for APIs. This ensures that consumers’ money and data are well protected from potential threats.
Banking has changed significantly over the past few years. Despite potential threats in this new ecosystem, several open banking startups continue to bring fresh ideas to the world of banking, creating solutions that not only protect user data but present new and innovative ways in which consumers can bank.
The Open Banking Startups to Look Out For
Credit Kudos is a credit bureau that uses financial behavior to measure creditworthiness. It utilizes consumer transaction data to build highly accurate and transparent credit score cards and affordability metrics.
Tink is a technology provider working with banks and fintechs across Europe to create digital banking products that leverage open banking and PSD2. Tink provides the building blocks for the future of digital banking, allowing banks and Fintechs to create vastly better customer experiences.
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Railsbank is an open banking startup that gives regulated and unregulated companies access to global banking. Their Banking as a Platform (Baap) and Financial Services as a Platform (FSaap) services provide an open platform and APIs that enable customers to access a complete range of wholesale banking capabilities.
Plaid provides companies with the tools and access needed for the development of a digitally-enabled financial system. This open banking startup solution simplifies financial technology by fixing the infrastructure of banks and credit cards.
TrueLayer is an open banking fintech startup that provides a platform utilized in building financial apps that connect to bank data, verify accounts, and access transactions. TrueLayer uses its toolkit to develop consumer and SMB applications in several areas, including payments, online lending, insurance, investment services, cryptocurrencies and many more.
Open Banking Startups: A Conclusion
The world of banking has changed dramatically. The way in which people use banks has changed and as a result, banking will continue to grow to adapt to the changing landscape. This new technology of banking has provided unique opportunities that have never been found before. Open banking startups are leading these innovative times, allowing financial institutions and consumers to be more digitally connected than ever before.
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