Why Open Banking is More Than Just a Buzzword in The Fintech Industry?
Why Open Banking is More Than Just a Buzzword in The Fintech Industry?
Open banking has become one of the biggest growth and opportunity pillars for fintechs across the globe, including in Indonesia.
This is evidenced by the increasing value of digital transactions and the high volume of digital banking transactions in Indonesia. The value of digital transaction money in December 2020 grew 30.44% Year-on-Year. Meanwhile, the volume of digital banking transactions in December 2020 grew 41.53% Year-on-Year.
The large growth of digital banking transactions and electronic money in Indonesia presents an opportunity for fintech companies.
Open banking allows users to share banking data with third parties openly through an application programming interface (API). With APIs, fintechs are able to easily connect to financial institutions, for example.
Fintechs stand to benefit with the prevalence of Open Banking
1. Provide Clear Picture of Consumer's Financial Situation
Through the use of database disclosure, fintechs can get a more accurate picture of a consumer's financial situation For instance, peer-to-peer lending companies can identify risk levels in order to offer more profitable loan terms to their consumers.Broadly speaking, fintechs will be able to make better decisions and improve operational efficiency.
2. Leverage Consumer Experience
Open banking allows fintechs to provide various financial services on their integrated platforms. Consumers no longer have to toggle between applications. For instance, consumers can directly transfer electronic money from the application to a bank account without having to go to the bank.
3. Generate Higher Profitability
Previously, we knew that open banking allows fintech companies or institutions to provide integrated services. This means that fintech companies can also streamline costs and increase profits.
This is because the use of existing data disclosure in open banking can be used comprehensively. Eventually the company can also increase penetration of products and services to consumers.
What Should Fintech Companies Do to Leverage Open Banking?
There are four assessments of what fintech should do before implementing an open banking strategy. It is about how ready you are to embrace the future and conduct a gap analysis to identify areas that require capacity building.
First, as a financial institution You should build technology readiness. How is your current state of IT infrastructure? Is it ease of API integration?
Flexible IT infrastructure is one of a kind to improve your technology readiness. It allows fintech to integrate conventional systems with the latest technology.
Keep in mind that the financial industry, including financial technology, is not about its technology but also human itself.
Second, besides technology readiness, You should focus on your manpower. Make sure you have manpowers that are capable of building and managing APIs. This can be done so by providing necessary training.
Third, cost implications. Developing and upgrading your system to open banking API can imply your operational cost.
You should measure how much cost capacity you have in building or integrating an API. You should ideally strategize the best way to implement the open banking API solutions, building it on your own or integrating through third-party providers. Don't let this improvement make a loss instead.
Last, perceive yourself as a consumer. Identify what your consumer needs. It is implied to what feature or product that you want to provide in your open banking API.
(Reference: Deloitte)
