Bahaa Abdul Hussein puts out the basics on open banking and refers it as a term that is used in the financial services industry. It refers to the practice of the sharing of financial information between third-party financial services and banks via APIs or application programming interfaces. Essentially, APIs are code sets permitting two differing software applications to communicate with each other.

The Purpose of APIs

In the Open Banking sphere, APIs permit banks to share any customers’ data with third-party service providers, like fintech (financial technology) companies, without customers needing to share any login credentials. Such data may be used to offer an array of innovative and fresh financial services as mentioned below:

  • Aggregation of Accounts: This permits customers to view all their accounts in a single spot, regardless of the bank in which accounts are held.
  • Initiation of Payment: This lets customers initiate payments from bank accounts to third-party recipients, without requiring to log in to any bank’s mobile app or website.
  • PFM or Personal Financial Management: This permits customers to monitor budgets, spending, and aids in setting financial goals.
  • Credit Scoring: This lets third-party service providers assess customers’ creditworthiness, according to financial data.
  • Investment Planning and Advice: Here, customers get investment planning tips and advice from certain third-party providers, aligned with financial data.

The Importance of APIs

Open Banking is the system that has the potential to revamp and transform the financial services industry. The system makes it simpler for customers to share and access financial data. It also aids in the promotion of an innovative and competitive financial services landscape. More and more financial bodies would then vie for customers and improve the customer experience in doing so.

You should note that APIs’ role in Open Banking is an essential one. APIs are among those factors that help to bridge the gap between secure data sharing of banks with third-party services. Without these APIs, you could say that Open Banking may not be a possibility.

Final Thoughts – The Perks of APIs

There are several pros in using APIs in the arena of Open Banking. The first thing that comes to mind is that APIs permit for the secure sharing of information. Data shared via APIs is encrypted and so, protected by particular security means, like authorization and authentication. Consequently, customer data is safeguarded at all times.

APIs also allow for efficiency in data sharing. Apart from this, APIs permit scalability as well as flexibility, with data being shared in various formats and scaled for the accommodation of different business needs.

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