As the country tries to overcome and rebound from the pandemic as well as choose its political future for the next four years, the economy is shaky at best. As a result, businesses are pulling out all the stops in a mad dash to remain open and profitable.
One of the industries that’s been the hardest hit is the lending industry. Lenders have had to take a hit as people are finding it much harder to pay off debts due to layoffs and job losses. One financial option that’s promising to revolutionize the economy for financial institutions, businesses, and consumers alike is open banking. Continue reading to learn more about how open banking is impacting businesses and their investments.
What is open banking anyway?
If you’re not an economist or financial expert, then you’re probably asking yourself, “What is open banking?” Open banking is a system that allows third parties to have easier access to consumers’ financial information. Application programming interfaces (APIs) are the platforms where third-parties get the data. These third parties use APIs to create apps as well as services and promotions for consumers.
Open banking was initially created to give consumers more and better financing options. It allows them to easily share financial information with prospective lenders and creditors without having to input all of their personal and financial information. In order for financial institutions to share this data, they have to get the permission of their customers. Many of them make this a condition of membership in their “terms of agreement”.
There are concerns about the safety of open banking, but safety is one of the main features of it. You can consider open banking to be traditional banking’s answer to cryptocurrency — specifically blockchain technology. It’s not used for the same purposes, but it’s still a means of democratizing financial data with the consumer’s consent.
Open banking isn’t just a great tool for financial institutions and third parties, it’s also great for consumers as well. It makes it easier for consumers to connect with prospective credit card providers and lenders as well as find the financial services they need most.
How will open banking affect business investments?
For investors, change is always scary because they literally have a vested interest in things staying as they are. While change is always a cause for concern in the business world, it also usually brings with it vast opportunities for those with a keen eye.
Business investments could actually see an increase as consumers look for many new ways to invest. APIs allow consumers to disseminate data quicker, safer, and to more institutions than ever before meaning that there’s a much greater chance that your institution could be the one they choose.
If you’re not investing in open banking, then you’re cutting yourself off from a potentially huge stream of revenue. Investing in open banking is like casting a wider net, but instead of you fishing for more consumers, there will be more of them fishing for you.
It’s even good for passive income investments like AirBnB and P2P businesses. As the share economy and peer lending become more prominent and a lot of people continue to seek out passive income opportunities in the P2P realm, open banking will become more important.
Not to mention, you can use APIs to target specific consumers. The democratization of personal and financial data gives you greater insight into what financial services consumers are looking for, and you can create marketing campaigns and promotions tailored to their needs.
Should your small business invest in open banking?
Open banking is great for small businesses as well as for financial institutions and consumers. For small businesses, it means greater access to business loans and other financial services. It also means more transparency for small business owners who are looking for the right financial institution to partner with. Creditors and lenders use your financial history to make decisions before partnering with you, shouldn’t you do the same?