4 Open Banking Use Cases Driving Digital Transformation
Open banking is changing completely the way we think about financial services. If you read this blog, you probably know that already, as it's one of our favourite topics to research and inform you about, given the critical relevance for all the companies operating in the finance industry.
This time we look at four specific open banking use cases that we think are particularly relevant for you to know, as well as what's next with the open Finance API Framework announced by the 'Berlin Group'.
1. KYC Process Acceleration
Know Your Customer (KYC) procedures are part of the client onboarding process and include all the required actions needed by banks to help prevent and identify potential illegal activities - e.g. terrorism financing and money laundering. Practically speaking, the KYC process is composed of various steps that include ID card and proof-of-address documents verification. Thanks to PSD2 compliant open banking APIs, it's now possible for financial institutions to dramatically accelerate the speed for such time-consuming procedures and reduce the compliance costs by automating a large percentage of the process.
2. Customer Identity Verification
Customer identity verification directly connects with the KYC process that we described in the previous point, and it's usually considered an open banking priority for banks, payments companies, and other financial operators. The stricter requirements and related obligations introduced with the Strong Customer Authentication (SCA), as part of the PSD2, made the open banking possibilities even more essential to streamline the process.
3. Personal and Business Financial Management
Open banking makes much more interesting what's possible to offer customers in terms of personal and business financial management. It allows increasing customer engagement with data-driven insights and by providing an aggregated view of all their accounts in one single application. This new opportunity for banks to analyse vast amounts of financial data in real-time allows them to offer clients a customized experience with personalized insights and suggestions.
4. Credit Risk Scoring Algorithm and Calculations
Thanks to APIs, account aggregation, and the use of algorithms with machine learning, open banking allows financial institutions to radically improve credit scoring by making it faster, more efficient, and even safer. It is now much easier to integrate it as an additional service on top of an existing commercial offer, giving the possibility to quickly calculate clients’ credit scores based on their income, loans, and aggregated accounts.
But that's not all. If a lot in financial services have already been transformed, many more changes will come in the future. On top of Open Banking UK and Revised Directive on Payment Services (PSD2), it's what the 'Berlin Group' is doing that we find of particular interest.
The 'Berlin Group' is a European coalition of banks and Third Party Providers (TPPs), including both Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs). The companies part of this group are working on payment interoperability standards and harmonisation initiatives to define an open and standard scheme. In October 2020, they announced the open Finance API Framework, planned on top of the prominent NextGenPSD2 interoperability framework, designed to give TPPs, API access to bank accounts.
Based on open industry standards such as REST, JSON, and ISO20022, the new open Finance API Framework will offer a harmonised and interoperable set of APIs, allowing banks and TPPs to provide enriched and enhanced data, products, and services.
If you are interested in exploring the global movement of Open Banking and its benefits further, all you need to do is to contact PaymentComponents and we will guide you in this long path safely.

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