What Is Open Banking? A Beginner’s Guide to the Financial Revolution!

Anything that has seen massive growth in the last decade is online banking. Almost all our financial transactions are online today. 

Even banks and financial institutions ensure the safety of consumers’ data while ensuring their privacy. A concept called open banking is changing the way people manage their money. So, what is this open banking, and is it even safe?

Thus, in this blog, we cover everything there is to know about open banking.

What is Open Banking?

An open banking system allows banks and other financial institutions to securely share their customers’ financial data with third-party providers through APIs (Application Programming Interfaces), and it only happens with the customer’s consent.

To put it in simpler terms, it means you, as the customer of a bank, have the option to permit your bank to share your financial data (like transaction history, spending habits, and account balances) with authorized apps or platforms that can help you manage your money better.

How does Open Banking work?

Open Banking systems are API-facilitated. An API is a digital tool allowing banks to share customer data with third-party apps or fintech companies while maintaining privacy and security.

How it works is:

1. You, as the customer of a bank/financial institution, give consent to a third-party app (like UPI or a loan service)

2. The app requests access to your data via the bank’s open banking API

3. Your bank then verifies your identity and grants access to only the data that you have approved.

4. The app uses this data to offer you personalized services.

Is Open Banking Safe?

A question that worries consumers in the case of any digital transaction is whether it is safe. Security is of the utmost concern anytime financial data is involved.

The good news is that open banking is entirely safe. Here why:

• Most developed and developing countries, including India, the UK, and the EU, use strict laws for open banking regulations. These laws strongly specify that customer authentication and consent are mandatory.

• Most leading banks and fintech companies use encryption and authentication mechanisms to secure your data.

• Open banking does not require your bank’s password, so you can rest assured that your sensitive banking information is safe.

Of course, not all third-party apps are secure. Hence, you must use the apps authorized by regulatory bodies or central authorities like the RBI.

What are the benefits of open banking?

• Fintech companies use the financial information you share for better personalized offers, specifically to meet your needs.

• Lenders can use your financial data to make more accurate lending decisions and make you qualify for better rates.

• Open banking allows you to link multiple bank accounts into one app, giving you a complete financial picture in one place.

Of course, the open banking ecosystem is expanding quickly in India. Thus, more and more consumers are adopting open banking because it gives them more control.  Companies are making their interfaces more customer-centric so you can manage your finances smartly. As long as the question of safety goes, choose wisely and go for a regulated/authorized service.