Use cases of open banking

Open banking is like the earthquake that hit the banking industry. It’s going to change the landscape of banking services completely. While it poses a significant challenge to the big established players, it simultaneously presents a sea of opportunities for new businesses.

In this article, we will take a look at the few possible use cases of open banking. If you are not yet familiar with the concept itself, we strongly encourage you to read our two previous pieces. There is one about open banking itself and another about The Second European Payment Directive (PSD2). We think that understanding the nature of the changes will help you keep your eyes open for new business opportunities.

2021 – the year of open banking?

The idea of open banking was born back in 2015. You might think that since it’s already 2021, it should be up and running for a long time by now. Well. It sort of is, and it isn’t.

First of all, open banking is a novelty. Having said that, it’s obvious that the revolution takes time. Secondly, and on a very pragmatic level, introducing APIs in every institution requires a considerable amount of work. With this in mind, it’s no wonder that we’ve been waiting to see open banking in practice for quite some time (we do now, so here’s how to integrate bank APIs).

It seems that 2021 may be the year we are finally to see the effects of this revolution. More and more banks are seeing the potential and opportunities brought to them by open banking. The approaching deadline for sharing their data with the public is undoubtedly one of the reasons too.

With the growing number of banks making their APIs available, it is obvious we can see the emergence of many fintech companies. It is said that the number of users of open banking services is going to double in 2021 and reach 40 million people.

Is it the right moment to enter this market? Absolutely!

Why? The first players already started the game. Yet, there is still plenty of room for others. The rules are starting to clear out. Customers are familiar with the idea of using their phones for financial activities. We dare say it’s the perfect moment to propose something new.

To successfully navigate these changes, understanding the role of a robust core banking system is crucial. Our article on core banking systems provides an in-depth look at how these systems support open banking initiatives.

Possible open banking use cases – B2C and B2B

Since the timing is right, all you need to conquer the world is this one great idea. Your mind went blank at this very moment? No worries. This is precisely the reason why we prepared this cheat sheet for you.

Don’t get us wrong. We won’t do all the thinking for you (unless you decide to do Product Discovery Workshops). Instead, we are going to present you with a few use cases for open banking. We hope those broad ideas will help to steer your train of thought in the right direction.

At the end we included one additional idea. This one is already in the phase of implementation. It’s a bold plan coordinated at the state level. Still, maybe it will inspire you anyway?

B2C

Let’s start by targeting private customers. We’ve prepared examples of areas where open banking can be used to propose new solutions or refine existing ones.

Personal finance information – digital wallet

If we were to name the single most popular and intuitive use case for open banking, that would be it – creating one tool to keep track of personal finances. All the credit cards, debit cards, savings accounts, current accounts, loans, mortgages, etc. neatly presented in one interface. No more switching between different apps.

Remember the times when you kept all your money (including the cards, of course) in your wallet. Think of our idea as a digital wallet. The hub for all the money someone has.

There is a need for infrastructure that connects to different banks’ APIs. It also requires obtaining a license for a Third Party Provider. Still, we believe it’s worth the trouble.

Room for growth

Presenting information in a digest form is the very basic functionality. Yet, even this single feature might be alluring to people who value convenience and time. And from there, you can take many different paths to enhance this idea even further. It sounds like a perfect idea for a lean company.

What can you add at later stages to stand out from the competition? Here are just a few ideas:

• instant money transfers between accounts in different banks
• escrow for private on-line transactions
• integration for loyalty cards
• payment reminders
• suggestion what card to use based on the interest rate and date of the month

The above are just the examples off the top of our heads. We are sure that there are many more that can be discovered during a good brainstorming session. There is also a big one we came up with, but it’s so interesting we decided to write the whole section about it.

Forming (financial) habits

Facts versus self-creation

Let’s not beat around the bush when you gain access to the person’s finances you practically know everything about them. You can quickly identify the spending patterns and then parse the data to learn the probable demography, lifestyle, hobbies, information about kids, and marital status. This is just to name a few. It’s even possible to decode the receipts to see the exact products someone bought.

This kind of data is precious for advertising. It would probably be worth more than those obtained from social networks as it shows the reality and not the persona we create in social media for others to see. Yet, you can’t sell it without users’ permission. And we don’t think people would be willing to grant this permission to anyone.

So why do we even mention this?

Serve not sell

What would you say about the revolutionary idea to use this data to actually serve users? What do we mean by that?

Think about all those apps for forming habits. There are plenty of those. Each day you do something, you create a longer chain. Or you bet the app on some money, and if you break the new habit, the money goes for the charity you hate (we find this particular one pretty funny). There is, however, one shared weakness to all those apps. Nothing happens until you claim you either followed or broke the new habit. So what about an app that analyzes your spendings and knows if you bought yourself this Starbucks coffee?

Such habit-forming apps can be used for any repeatable behavior. It can solely focus on finance and encourage the user to save a small amount of money every day. Or it can go a step further and analyze card transactions to see if they quitted smoking/sweets/ expensive lunches as they wished.

There is also one additional angle to this approach. We will discuss it in the next paragraph.

Smart decision making

The use case described above was about making small improvements in the users’ life. Now let’s focus on significant moments in life. In particular, buying a flat or a house. For some people, making this decision is terrifying, and they would use any help they could. What’s open banking have to do with that?

Real-time credit information

We can think of two things. We will start with the more straightforward one. Budget. Applying for a mortgage is stressful and time-consuming. And in the end, you can’t be sure how much money you can get. Providing a tool that can analyze users’ finances and give them a quick estimate of how much they can spend on the house would be of great help.

Data-driven insights

But there is at least one more thing that can be done with open banking. They say that a person’s heart is where the money goes. Why not help people decide where they want to live. You ask how? We are eager to explain.

We already mentioned that analyzing spending provides tremendous knowledge about a person’s lifestyle. The app that uses this precise knowledge to suggest real estate offers best suited to the individual’s needs might come useful. What is even more interesting you could build partnerships with agencies and developers. And on top of this all, what about adding the functionality to apply for a mortgage with just one click?

Connected ideas

This schema can be easily used for different decisions as well. Schools, gyms, even shops – anything can be matched to the users’ needs. What a growth potential!

B2B

The B2B market already sees some interesting fintech initiatives. However, there is still plenty of room for new ideas and new products.

Business finance information

We wrote a lot about possible use cases in managing personal finances. But banking is not only about people. It’s also, if not mainly, about organizations. Can we adjust some of the ideas described above for organizations?

Let’s think about a dashboard to see the financial big picture in one place. It seems to us that such a tool might be even popular in organizations. This is a reason why big companies have entire departments to manage their finances. It’s complicated. Building a tool that makes it easier – sounds like a good business idea.

Accessible credibility assurance

There is nothing more valuable in business than credibility. Yet, we’ve already stated that company’s finances are complicated. So, is there any quick way to check your potential partner’s credibility? Big companies can afford to hire external auditors, but small and medium-sized ones? Are they to rely solely on their partners’ words? Not necessarily. Some founders already noticed this niche, and there are companies like DueDil, Ormsby Street, and xelix. Their products differ, but they are all focused on delivering insights for business.

Smart invoicing

For the smallest businesses, there is a Coconut app. It is a center for small business finances wrapped up in an app. It helps keep track of expenses, invoices, and accounting. And it connects business owners with accountants. So it partially takes from the ideas described above.

Is it all open banking has for business? We don’t think so. In today’s society knowledge is power. Knowledge gained from financial data can be a substantial competitive edge for any business.

Digital identity – open banking outside finance

There is one additional use case we have to mention here. It is interesting because it’s not connected to finance in any way and yet is based on open banking. The World Economic Forum is currently working on an initiative called Known Traveller Digital Identity. Its aim is to allow international travel without any documents.

What does it have to do with open banking? It turns out that the data needed to open a bank account are nearly the same as the ones required to issue a passport. The idea is to use mobile banking applications or a dedicated app that would connect to banking infrastructure via API (does it sound familiar?) as a method of identity check.

For us, this initiative is proof that with open banking, business possibilities are only limited by imagination and funding.

Summary

The introduction of open banking is a game-changer for the banking industry. Data that was private and securely held on the servers in banking institutions can now be shared with other entities. This revolution is not a rapid one, but it’s gaining momentum. There are already some successful companies offering services based on open banking. Yet, there is still plenty of room for innovative endeavours. This article can serve as a starting point for brainstorming your idea. We hope we’ve managed to convince you that it’s worth considering fintech when thinking about your product.

If you already have some ideas, we will be happy to talk and help you refine them.