Open banking has emerged as one of the most significant developments in the financial services industry in recent years. With open banking, third-party providers can access financial data and services through APIs, allowing for greater innovation and competition in the market. This has led to the rise of many fintech startups that are leveraging open banking to create new products and services.
What is Open Banking?
Open banking is a system that allows third-party providers to access financial data and services through APIs. This means that customers can share their financial data with other organizations, such as fintech startups or other banks, which can then use that data to provide new financial products and services.
Open banking was introduced in response to the increasing digitization of the financial services industry, as well as the growing demand for more personalized and innovative financial products. By allowing third-party providers to access financial data, open banking creates a more competitive market, which can lead to better services and lower costs for consumers.
There are two main types of open banking: regulatory and voluntary. Regulatory open banking is mandated by government regulations, such as the EU’s PSD2 (Payment Services Directive 2), which requires banks to provide third-party providers with access to customer data through APIs. Voluntary open banking, on the other hand, is when banks choose to offer API access to third-party providers on their own accord, without any regulatory mandate.
How Fintech Startups are Using Open Banking to Create Innovative Financial Products and Services
One such fintech startup is Exactly, which offers a range of open banking services to businesses. Their open banking platform enables businesses to connect to their customers’ bank accounts and access real-time data, enabling them to provide more personalized and relevant financial products and services. Additionally, Exactly’s payment gateway and payment processing services enable businesses to easily accept payments online, and GoCardless.com allows to offer recurring payments and instant bank pay options.
GoCardless, on the other hand, focuses specifically on recurring payments and direct debits. Their instant bank pay product enables businesses to offer their customers a fast and seamless way to make payments directly from their bank accounts. Meanwhile, their recurring payments product allows businesses to set up and manage regular payments, making it ideal for subscription-based businesses.
Other fintech startups to watch in the open banking space include:
1. Tink: This Sweden-based fintech startup offers an open banking platform that allows businesses to access financial data from across Europe, making it easier to provide personalized financial products and services.
2. Railsbank: Railsbank is a UK-based fintech startup that offers a range of open banking services, including account management, card issuance, and payment processing.
3. TrueLayer: TrueLayer is a UK-based fintech startup that offers a range of open banking APIs, including payment initiation, account information, and authentication.
Overall, the open banking space is rapidly evolving, with new fintech startups emerging all the time. Exactly and GoCardless are just two examples of fintech startups that are leveraging open banking to create innovative new products and services. As the industry continues to grow, it will be interesting to see what other new startups emerge and how they will shape the future of financial services.
