There has never been a more exciting time to be involved with open banking than now. Largely driven by their open banking, API-centric technologies, fintech startups like Plaid and Stripe have seen substantial interest from investors and record investments, including Visa’s canceled multibillion-dollar acquisition of Plaid, which contributed to a massive spike in Plaid’s valuation, tripling it up to $13.4 billion. In fact, while open banking has already made its mark globally, especially in the U.K. and Europe, here in America, companies are only on the cusp of embracing the full potential of open banking at this moment, meaning now is the perfect time to catch this wave of open banking’s popularity and subsequent profits.
What is open banking and why is it vital to success in today’s financial markets?
Open banking occurs when a bank or financial institution gives its consumers the option to release their financial information to third-party providers in order to gain access to that data as shown to them through application programming interfaces (APIs). In doing so, the bank’s customers become more informed about their finances and can take a more proactive approach toward management and planning.
Open banking simplifies banking for both the customer and the bank since some third-party APIs have other functions, including assisting with data management, processing, organization, reporting and analysis. In addition, open banking helps with automation, which can make understanding financial positions or performance of internal controls much more streamlined. Altogether, open banking APIs today provide secure, reliable, and accessible data transfer between banks and end-users in real-time.
As the economy rebounds from the pandemic and technology continues to shape our recovery, it is important to realize the vital role open banking now plays in meeting the daily needs of our frequent financial exchanges. More importantly, startups and other small businesses need to be at the forefront of this trend for many reasons as open banking plays an increasingly more critical role in the future of our connected economic and financial landscape, including the facts that:
- Rising generations are all right with it—Younger generations are especially enthusiastic about open banking and all its associated technologies. Banks or other financial institutions that offer third-party API integration to give them more freedom to manage their money more efficiently will capture their allegiance for years to come.
- The movers and shakers want in on it—Those who make more money are also quite excited about open banking. In fact, people who make at least $250,000 per year look forward to the control and comprehensive management that open banking can give them over their finances. With improved access and oversight over important financial data, more financial insights could lead to more financial gains.
- The future projections are off the charts—To put it frankly, open banking is the way of the future. It is the banking method of choice for 2021 and shows no signs of slowing. Per a recent MarketWatch market report, the “global open banking market is expected to grow with 24% CAGR through 2027.” As a startup or other small business, you should anticipate this major growth and be ready with solutions that will meet the market’s needs.
How emerging businesses and small enterprises can leverage open banking toward their success
Startups today are using open banking to their advantage—and attaining great success. To do so, a startup must consider the following tactics:
Mobilize the collaborative interplay of key partnerships
To correctly utilize key partnerships, startups must first acknowledge the importance of collaboration. Open banking cannot fulfill its full potential without emphasizing existing partnerships.
For example,“tie-ups” between banks, fintech companies, and other third-party providers are the lifeblood of the open banking movement. The interplay of these partners is a significant component of a successful open banking Ecosystem. The partners can work together to improve their client offerings. For third-party providers and other fintech companies, which means offering an innovative API or other IP that the customers of a bank want; for banks and other financial institutions, which means gaining more customers and customer satisfaction by enlisting the assistance of third-party providers through releasing personal financial information to them with open banking.
Implement vast technological advancements
Effectively utilizing new tools and technology to support scale and automation is critical to any successful business, especially from the start, but such innovations are particularly significant for the financial industry. Legacy fintechs and emerging businesses must be willing to either innovate and create something the world has never seen or adopt a technology that will improve their growth potential.
In such a data-driven world with analytics possessing their weight in gold, startups and small businesses should be eager to adopt or develop all-encompassing APIs that can “do it all—and do it better.” This means the APIs for open banking customers should aggregate data from a variety of disparate global accounts and display them in a digestible way, instantly in real-time, so that the client always knows their financial position.
Such APIs for the end-user must also integrate the accurate data from subsidiaries, financial institutions, short-term investment tools and even ERP systems that help the client better manage their financial planning and internal controls. APIs also offer additional clarity into an enterprises financial standing. Over the last year, “income smoothing” through supplementation and cash advances has become prevalent and popular amongst many end-users, especially those who are “financially squeezed.”
Overall, open banking APIs must offer precise, and efficient data management solutions as well. Today’s open banking end-user wants their financial data and analysis, and they want it in real-time. To meet the need for instant access, the APIs offered by emerging companies, whether acquired or internally developed, must be completely secure and offer a level of rich transaction data that clients expect from an enterprise automation platform.
Assist with pandemic recovery
Open banking has seen a spike in part due to the pandemic, which has exposed the need for precise liquidity management. Inaccurate forecasting and poor cash liquidity lead to rash decisions during the pandemic. Many companies reduced expenses out of fear but didn’t have an accurate forecast to fall back on, which stunted financial growth. Emerging businesses now have the ability to utilize open banking to develop a more advanced system for cash forecasting and liquidity management. Open banking is an important step toward becoming an innovative and thriving company.
Embrace the new architecture of this economy
The pandemic has evolved our world’s financial situation, from the gig economy to work-from-home, the last few decades have seen a traditional system morph into something newer and bolder. Startups should prepare to use open banking as a tool to help them embrace the future.
If you are not adopting or developing open banking technology for your organization, you are not unlocking your full potential as a company, especially if you are in a financial management position. Open banking is the best way to excel in the post-pandemic economy and usher in the new architecture of an evolved economy. APIs are being built every day that expand the global capabilities of open banking. Driving growth is crucial to your organizations success and automating your cash management is the key to managing your cash with speed and precision. For emerging businesses, open banking is the key to driving financial growth.
So, if you want to drive your growth as a startup, open banking is a strong option.