Many industry experts and consulting firms regard open banking as a development that is likely to fundamentally change the value-creation models of banks and other players in the financial sector. The fact, however, is that much is still unclear in this area; the information from all corners is still being brought together. In the following text, we will try to clear up the most important facts and features of Open Banking. 

What is Open Banking?

Open banking can also be referred to as an open-finance business model. At its core, it is about enabling new digital customer innovations. With Open Banking, the data, functions, and services of banks are networked in cooperation with third-party providers. In this way, new customer solutions are created or existing solutions are expanded.

The process is as follows: the customer opens his banking data to a third party, a financial service. It means that his or her account and transaction data will be made available to FinTechs or WealthTechs. Thus, he or she has access to a wider range of products and services. An example of Open Banking are platforms that aggregate financial data from different banking relationships. This enables a complete asset overview (also called multibanking).

Open Banking and Wealth Management

Asset managers and custody customers can access the data reference using the so-called OpenWealth API. The API is an Application Programming Interface through which two or more computer programmes communicate with each other. Simply put, it is a type of software interface, offering a service to other pieces of software. In this way, the wealth manager represents the customer portfolios in a system. 

This allows the customer to share his or her data with the wealth. In this way, wealth managers cooperate not only with their clients but also with the banks of their clients. With the application case of external asset managers, banking institutions such for example the Zürcher Kantonalbank provide a foundation stone for Open Banking. Clients can benefit from enhanced service offerings involving different financial services providers, such as banks, FinTechs, and insurance companies. The focus is on data confidentiality and data security, with the necessary technological safeguards.

Benefits for Customers

Open Banking business models contribute to a positive client experience: a wide variety of financial service providers serve the customers. It is therefore clearly in the customers interest to simplify and network this landscape.

Obviously, financial institutions own and store large amounts of data instead of using it to drive innovation. Traditional banks have always been very conservative, since they benefited from the fact that they had exclusive access to their customers’ financial data.

Modern regulations changed this by pushing for the sharing of this precious information in order to promote the development of better products and services. These offerings were designed to help end users instead of acting like an additional obstacle to their real-life needs. In particular, there are the following advantages of Open Banking:

01 Data aggregation enables companies to access and combine customer bank account data, providing tailored support with money management and actionable insights.

02 Open banking enables customers to share their financial data with third-party providers to access a wider range of products and services.

03 It helps clients of financial institutions save money on loans and mortgages.

04 Open Banking improves financial inclusion by providing access to financial services to underserved populations.

05 It helps prevent financial fraud by giving customers more control over their data and who can access it. 

Open Banking at Zürcher Kantonalbank

One of the Swiss banks where open banking and the opening of APIs have been implemented for a long time is the Zürcher Kantonalbank. Approximately six years ago, it was decided within the bank that APIs should be established as a strategic boost within the multichannel management business area. According to the institution’s website, the decision was made within the bank to establish APIs as a strategic enhancement to the multichannel management business area approximately six years ago. An essential component of its API expertise has been the exchange, sharing, and discussion of knowledge and experience regarding the API standards within the bank and the trends in Open Banking.

FinTech and Open Banking

As the IFZ Open Banking Study 2022 done by the Institut für Finanzdienstleistungen Zug (Switzerland) notes, many young companies and FinTechs succeed in offering excellent solutions for specific customer needs. One of the examples is Altoo’s Wealth Platform in the wealth management area.

The banking institutions can offer clients comprehensive asset advice, which includes assets held at other institutions as well as non-bankable assets. In addition, the Altoo software allows the banks to offer Family Office services. The customer can benefit again from the fact that the consultant of his trust knows the overall situation and submits proposals based on this understanding. The bank can, in turn, link the customer via the tool, which has a high level of user-friendliness, and also position itself as a consultant in a new league.

Explanation of the technical terms 

Open Banking: also known as “open bank data,” is a banking practice that provides third-party (financial service) open access to consumer banking, transactions, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs).

API: Application Programming Interface is any software with a distinct function; it can be thought of as a contract of service between two applications, which defines how the two communicate with each other using requests and responses.

Multibanking: allows users to clearly see accounts from different banks at home and abroad on one user interface, and they can manage their financial transactions from one central platform.

Data Aggregation: the process of compiling typically large amounts of information from a given database and organising it into a more consumable and comprehensive medium

FinTech: abbreviation “financial technology” refers to firms using new technology to compete with traditional financial methods in the delivery of financial services; artificial intelligence (AI), blockchain, cloud computing, and big data are regarded as the “ABCD” (four key areas) of FinTech.