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Fintech & Banking

Open Banking

Open Banking, or Consumer-Directed Finance, revolves around FinTech developers leveraging open APIs to gain access to customer data residing in any financial institution. The concept allows all companies offering banking services to augment their offerings, improve customer engagement, and create new channels for digital revenue.

Global Developments

Adoption of Open Banking is well under way in many countries and is already operational in the United Kingdom under the Open Banking Standard. The European Union had passed the Second Payment Services Directive (PSD2) in 2015, which will be implemented by the end of 2020 to address security concerns. Australia, Japan, and Brazil, too, have developed standards similar to the PSD2 and are making progress on their implementation. In the US, Open Banking is an industry-driven initiative, and although the Treasury has issued recommendations, there are no standards or regulations in place yet.

The Government of Canada has created an Advisory Committee on Open Banking, which is looking at addressing potential risks that Open Banking may pose to consumer protection, privacy and confidentiality, financial crime, and financial stability. Meanwhile, the Digital ID and Authentication Council of Canada (DIACC) is working on drafting a Pan-Canadian Trust Framework for FSI organizations to safely authorize access to and exchange sensitive data with each other and citizens.

Canadian banks are already working towards open banking adoption and 6 major banks have created a blockchain-based digital entity service to pave the way for an open banking system.

Goals of Open Banking

To create better financial transparency for customers

To provide customers with more affordable and useful services

To promote a more competitive and innovative financial ecosystem

Open Banking holds great promise for consumers, giving them greater flexibility and transparency when it comes to financial solutions. It will make switching banks and comparing their accounts at different financial institutions easier and will give consumers the freedom to find better mortgage rates and alternative sources of financing. It will also allow consumers to secure a loan with one institution and refinance their debt with another, encouraging financial institutions to be more competitive.

Moreover, consumers will be able to get faster credit decisioning and will be able to review their overall financial position, across various organizations, to get a more holistic view of their spends, savings and debt.

Banks will be able to leverage Open Banking to see their customers’ complete financial positions, which will allow for better credit and NBO decisioning. In addition, banks will be able to generate better returns on marketing campaigns by more accurate targeting. Overall, Open Banking will likely be a motivator for innovation and could spur significant growth for banks that can leverage the open data to its full potential.

How Adastra can Support Open Banking

Open Banking will completely change the quantum of data available for banking decisions, and without appropriate use of this data, financial institutions may run the risk of getting left behind as the banking ecosystem undergoes reform.

Adastra’s experts can help banks extract the maximum value from the new data coming their way, while mitigating potential risks. Our Azure Service Bus based inter-entity integration (API) framework comes with PCI DSS-level secure data persistency, a data quality firewall and processes for mastering of customer data.

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Our solution includes capabilities for:

  • Customer Analytics: Until now, customer analytics were based on the information provided by the customers and historic patterns or trends of their interaction with the financial institution, along with global trends, and centrally collated information, such as credit scores. Open Banking will allow organizations view not only a customer’s history with their bank, but also with other banks and institutions. Adastra’s solution includes subscription-based anonymization and aggregation for analytics on customer data. This will make profitability and risk analysis more complex, but significantly more accurate. Moreover, information about a customer’s portfolio across institutions will allow for more targeted marketing, leading to better ROI for campaigns.

  • Real-Time Fraud Analytics: Banks will have access to additional data points from a customer’s behavior across various financial institutions. Through use of advanced AI solutions, financial institutions can identify anomalies in a customer’s behavior or even patterns that are aligned with potentially fraudulent activity before it occurs. By flagging identified customers, banks can closely monitor their behavior and alert their staff to take necessary action as needed.

  • Data Classification and Security: Data classification, or the process of tagging data to make sure it is easily trackable, is essential for proper risk management, compliance, and data security. Data classification can be done in numerous ways, based on content, context, or user authentication, and can give a clear picture of all the data the organization has, where it is stored, and ways to access it. A good classification system is essential for creating a well-organized data framework that can be adequately protected and accessed in accordance with organizational policies.

  • Data and Process Governance: Before data can be leveraged for analytics and AI solutions, a governance system needs be in place to ensure reliability of both the data and process. For financial institutions, the need for external and regulatory reporting makes this step even more important. It is essential for organizations to have the right checks in place to ensure that their data is clean, verifiable, and complete, without any inconsistencies or duplication.

  • Cyber Risk: Adastra has the expertise to safeguard your data from potential breaches, cyber-attacks, and other external threats. As financial institutions adopt open banking practices, new threats may emerge that banks will have to avert. Adastra has years of expertise in identifying and mitigating cyber-attacks, so that your data and your customers’ sensitive information remains safe.

  • Party MDM and RDM: Master Data Management is essential for correctly defining, integrating, managing, and sharing reliable metadata. Reference Data Management helps in classification and categorization of customer and product information, transaction details, and other types of information that an organization may have. Both processes are crucial components of governance, both for internal and external consumption of data.

Adastra can help organizations develop an open banking architecture with in-built API security, customer authentication, consent management and capability for third-party onboarding. The platform will be integrated with the external banking system and the user stores. Our solution will allow for analytics and insights and have proper fraud detection solutions, in accordance with existing standards.

We also focus strongly on customer experience, and the solution will be easy to navigate through, while also having the required security profiles in place, so that your organization’s data remains safe and allows for all banking and financial use cases.

Interested in learning more about Open Banking? Schedule a free consultation with our experts for more information about our solutions.

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