Open Banking, AI, Data and the Three-Legged Problem Of Credit Foreword by Timothy Li, CEO, LendAPI: By Kaustuv Ghosh

According to Visa, 87 percent of U.S. consumers use open banking, but only 34 percent know that open banking drives their connected financial services. We have undoubtedly come a long way since then, as this fear, that’s keeping people locked out of tools that could substantially boost their financial well-being, is steadily dissipating. Customer-permissioned data, accessed via open banking capabilities, provides the bridge that enables personalised financial services whilst protecting data privacy. Open Finance can be critical as banks and credit unions consider new spin-off businesses and ventures in a competitive market. Open and collaborative solutions enable financial institutions to quickly create innovative programs and brand extensions that meet the needs of the communities they serve.

• For example, the 2 million registered daily users who have consented to open banking in the U.K.
• Even the most basic banking systems have elements of ‘if X then Y’ logic, such as the system that sends you a text if you are overdrawn.
• Thanks to strict protocols like the ones found in PSD2, fintechs are just starting to look under the waterline of the security iceberg.
• Finally, open banking providers need to understand that API attacks occur over time—over days, weeks and even months.

Modifying the principles of Open Banking for Global South Markets

Approached strategically, banks can provide open banking in a way that ensures everyone, including customers, comes out on top. The report also highlights specific preferences among consumers regarding the types of banking functions they believe AI should assist with. While fintechs and neobanks continue to lead in rolling out AI solutions, traditional banks are strategically positioning themselves to capitalize on high-value use cases identified by the study.

Agile companies and startups that embraced an open mindset were able to capture an outsized share of the value creation. This content is provided by an external author without editing by Finextra. In 2023, when people talk about AI, they generally aren’t referring to these relatively common systems that essentially function as flow charts, but a new generation of ‘generative AI’, pioneered by ChatGPT. This differs from machine learning and decision-making algorithms in that it is capable of creating ‘seemingly new, realistic content’.

Databricks exec explains why open banking will disrupt finance the same way open source upended software

However, this might also mean that established banks will find more expensive and sophisticated ways to connect to their customers and increase customer retention. Finally, open banking providers need to understand that API attacks occur over time—over days, weeks and even months. Organizations need comprehensive context into API behaviors to spot threats, including continuous analysis of hundreds of API attributes across millions of users and API calls. Obtaining that level of detail requires AI, ML and automation capabilities that can only be powered today by cloud-scale big data. Only cloud-scale big data, with the application of artificial intelligence and machine learning, has the power to capture and analyze this much data, correlating activities over time.

He stressed open banking’s role in helping break down a monopoly over customers’ financial information and empowering consumers to take control of their own financial data. Chopra acknowledged and emphasized that such access must be implemented with stringent data privacy standards to prevent misuse and maintain consumer trust. Open banking is a banking practice that allows third-party financial service providers to access consumer banking and financial data via application programming interfaces (APIs). In practice, this means that banks can show their customers the best financial products and services for each specific individual, offer a savings account that has a higher interest rate or a credit card with a lower interest rate. Lenders can get a more accurate picture of a person’s financial situation and their risk level, which will help lenders offer more suitable loan terms.

Back in 2021, early data showedthree in five consumers thought open banking was a dangerous use of data sharing, while more than two in five pointed to data sharing as their biggest concern regarding the banking practice. The individual needs of consumers in today’s globalised economy are constantly shifting. Individuals have a diverse array of financial situations, goals, and challenges, and a one-size-fits-all approach just isn’t effective. Now we have multifactor authentication (MFA) and biometrics technology, which changes a lot. Multifactor authentication requires the user not only a strong password (which is also important) but also another step to enter into an account. These can include an additional question, a text sent to the holder’s phone or a biometric scan like a fingerprint to unlock an account.

Prior to joining Databricks, Junta spent 14 years at Goldman Sachs, where he most recently served as the head of Asia Pacific sales for the Americas in the equities division. Even the most basic banking systems have elements of ‘if X then Y’ logic, such as the system that sends you a text if you are overdrawn. There are no humans making that decision, so it could be classed as a form of ‘artificial intelligence’. Company Overview Tink, founded in Sweden, provides an open banking platform that enables secure access to financial data through APIs. Acquired by Visa in 2022, Tink has expanded its services to over 18 markets, offering financial institutions a robust framework for data-driven decision-making. The international frameworks have shown how open banking can thrive when clear regulations align with technological advancements and innovation in the respective jurisdiction’s financial services industry.

After all, Open Banking itself will remain an attractive artifice but nothing more than that, unless it provides meaningful change or solves significant extant problems. This consent framework will need changes in legislation and regulations, some of which are being done already. While financial institutions may have relevant software available to provide key analytics, the real value will be obtained if the data processing outcomes are exposed in real-time to decisioning engines. It is likely that mid to large sized financial institutions will call for the previously-mentioned intermediaries to play a more active role in providing real-time outputs and to manage their decisioning engines as these acquire greater complexity.

The decisive factor for adaptation and survival will be the speed at which they can analyze customer information through the use of algorithms and automation. Various use cases can be rapidly prototyped from the data, such as banking-as-a-service and real-time personalization of financial products. Most of these registrations were either Account Information Service Providers or combined AISPs and Payment Initiation Service Providers. This seems to reflect that Open Banking is proving its worth more in the provision of innovative financial services rather than being an alternative to card payments at checkouts and eCommerce sites. Moving forward, banks should continue to scrutinize third parties’ security capabilities and monitor their protocols. External-facing applications are especially vulnerable, and fraudsters can quickly exploit breaches.

• Spotting unusual patterns in transaction monitoring that signal illegal activity or money laundering is one of the biggest challenges that open banking faces.
• Altman’s appearance at the Fed conference coincides with the Trump administration ushering in a friendlier environment for businesses, including those operating in the technology space.
• Security teams need more context about everything in the API environment to have the depth of understanding required to provide adequate protection.

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With access to high-quality data, we can build high-performance AI models and deliver significant impact and innovation to the world of Open Finance. The conference also highlighted the benefits of and need for a broader adoption of real-time and instant-payment settlement mechanisms. Instant payments enhance user experiences in both consumer and commercial contexts, such as minimizing delays in accessing money and enabling rapid delivery of goods or services. The data available through Open Finance enables businesses and financial institutions to gain deep insights into customer behavior. This allows companies to understand customer needs and target marketing efforts accordingly.