So-called open banking is a new ecosystem of financial services involving a multitude of players: traditional banks entering this field, banks native to the digital environment or neobanks and financial technology companies or fintechs, among many others.
Open banking and fintech: a new paradigm for the financial sector
Indiscriminate IT development is constantly changing today’s financial markets and ecosystems. From application programming interfaces (APIs) to the various initiatives that regulate their use, a greater openness of financial services can be perceived.
In this sense, what characterizes open banking is the relationship between these different players in the sector. That is, the free circulation of customers’ and users’ financial information. This circulation is circumscribed by the regulatory framework established by the proclamation of the Payment Services Directive PSD2 of the European Union. This defines the mandatory requirements for the collection and protection of data through APIs.
In the face of this situation, most of the leaders in the field of finance stress the need to integrate the various operators in the sector and the technology companies on a common, open-access IT infrastructure. Such a structure, as has been pointed out many times, already exists: it is the blockchain technology, especially the second generation.
Indeed, it is argued that the cryptographic infrastructure used to support the existence of cryptoassets, decentralized applications and the famous non-fungible tokens or NFTs, is also suitable for supporting open banking operations and services. Precisely for this reason, there is talk of a new generation of financial services: open banking crypto.
Blockchain technology applied to open banking
As we have already said, open banking allows banks, credit institutions and financial institutions of various types to have access – after prior consent – to users’ banking information through the implementation of APIs.
As a result, the performance of operations is considerably improved and new types of services and products appear, native to the digital environment, which are tailored to each user’s profile. In this sense, the implementation of blockchain technology is particularly attractive: not only does it improve performance, but it also makes it possible to maintain a very high standard of security, transparency, privacy and information integrity.
This is especially true in the case of second-generation blockchain technology: that is, the ability to produce decentralized applications that make it possible to create new products and offer new services. These employ smart contracts: transactions that are executed automatically and guarantee compliance with the conditions agreed upon.
Currently, in the financial ecosystem of open banking, most companies and institutions have their own repositories of data and financial information on their customers. With blockchain technology, the methodology would be the same, although the different APIs would use the same IT architecture that favors the circulation of information in the crypto environment.
The future ahead: main applications of this technology
Applying this technology to open banking requires a reconfiguration of the sector’s current services to operate with decentralized applications and smart contracts. However, this involves a migration that is feasible, as most of the market’s financial operations and services already exist in one form or another in the cryptoasset market.
As blockchain technology is so well developed, the main activities in the financial sector can be performed using cryptocurrencies and cryptoassets. In this sense, there is the possibility to make loans, apply for financing or invest our money.
In this sense, one of the main applications expected from the implementation of blockchain technology in open banking is the possibility of performing risk analysis and credit history assessment in an efficient and accurate way to offer personalized financing, according to the profile of the person and their ability to pay.
On the other hand, it allows users to request financing, since liquidity pools can be used to obtain loans, credits and insurance at a lower cost. Similarly, users can contribute to these liquidity pools to obtain a return on their capital -similar to fixed-term deposits and other savings tools-.
So-called open banking is an ecosystem of financial services in which multiple banking and non-banking players share financial information about their clients. Precisely for this reason, blockchain technology and smart contracts are considered to be the next step forward.