Open Banking, the future of Fintech: Challenges & Opportunities
We are in full digital revolution. The financial market has to keep up – Fintechs and customers alike.
Open banking is reshaping the industry. Is it challenging? But it can be done!
Officially, Open Banking can be defined as the “opportunity for people and businesses to use their transaction data to access better financial products and services”. In other words, it’s a way for people to regain control over their own financial decisions.
In the “traditional” system, banks had complete financial power to decide one thing or another, based on somehow “abstract” criteria. The reality was that most bank customers felt intimidated or overwhelmed by all those terms and numbers, that seemed too “rocket science” to be understood. Open Banking puts an end to all that. It brings all the financial information at the user’s fingertips. So the ball is in the consumer’s court.
The concept of open banking can be implemented in many ways, driving a series of clear benefits.
Customized financial education
Learning how to make the most out of our finances will improve our spending habits and it will increase our savings.
Sadly, at the moment, schools don’t teach financial education – not in a relevant way, at least.
We need more than a set of general rules and formulas that might never make sense or that we might never apply. We need an education we can relate to, based on information that is relevant and useful for our day to day life.
In a customized approach, our personal values and behaviours can be used as a case study to improve financial education. And this is one of the ways Open Banking products can help.
They provide customized financial education, tailored to the needs, resources and life context of the user.
Cheaper bank transfers and apps diversity
For a long time, when you said “bank transfer”, you implied “waiting in line”, “paperwork” and “bank fees” – or at least two out of three. That, until Revolut came around and saved the day. Open Banking follows this trend, too. All payments (online or POS) and bank transfers are suddenly cheaper.
A second big advantage is the fact that the financial applications are now developed by professionals – the tech companies.
It’s a competitive world. Every technology company aims to deliver the newest and trendiest products. They want to bring innovation into their customer. This means the best, most efficient and user-friendly banking apps. So now, the risk of getting frustrated with your bank’s app is significantly lower – because you have more options to choose from.
Does this sound too good to be true? Let’s see the challenges!
All these stress-free, innovative ways are still pending – or not quiet here yet. At least, not for every bank and every country. The reality is that FinTech companies are struggling and some actually go bankrupt before launching their products. And some, even after. Here are some of the challenges these companies are currently facing.
Little to no (observable) defects requirements
The market is competitive and their customers have many options now. So there is this constant pressure of having their applications available, up and running 100% of the time. They can’t afford any malfunctioning. This means little to no (observable) defects. The market is expecting improved user experience and better performances.
The bar is even higher, since now, the customers have a new reference point. Users don’t compare the open banking apps with their “old” banking applications, where they had little options and not much of a choice. They compare them with the ecommerce apps.
Unlike the classic banking apps, open banking apps serve multiple banks. So the data amount and the number of customers using the application in the same time is not as predictable as in the case of a single bank. But it has definitely increased. This means that there is a need of an exponentially higher performance. The open banking app needs to respond within milliseconds second or maybe two, as opposed to even minutes, like the case for various mobile banking applications. All this has to be achieved while the banks are providing the customer data, based on the user’s consent.
The banks are required to share the financial information using standardized APIs (Application Programming Interfaces), meaning the financial data has to be shared using the same format by all the banks.
But this is easily said than done. Financial data is rich and each bank has its own way of storing it and gathering it. The aggregation of data from various banks as sources leads to different formats, that might behave differently. Not to mention that each bank might have their own way of responding in error scenarios. It doesn’t help that FinTechs cannot easily rely on banks test or sandbox environments to prepare for various scenarios in live utilization.
Besides, some banks might not have all the data required for input or might not even share it at all – since, at the moment, banks are not obliged to share all data. Not to mention that the channels (APIs) used to transmit information to the outside world might not be as stable or always available, as banks are not used to these types of requirements.
All these create a lot of challenges for the FinTech companies, despite their best efforts to deliver what is expected of them.
Flawless products? Yes, please! But how?
Apps have to handle such great amount of data – as fast as possible. The user wants instant reaction time. And the higher the app’s complexity, the more difficult it is to detect the problems and the more expensive it is to fix them.
That means that a higher number of flaws are likely to be found too late in the development phase. Which leads to a greater risk of releasing a flawed product or a malfunctioning software.
But how can the current situation be improved? Creative, efficient testing solutions can be the answer.
The banks need to be educated about their lack of availability. And once that availability is established, it needs to continuously be checked. This is a measure to inform the banks if something is not working as expected.
By using artificial intelligence and experienced testing teams, efficient automation can be developed to enrich test data. To cover as many potential scenarios, in order to ensure proper functionality and proper error handling, without wasting time. Time is of the essence in the Tech world – faster releases lead to less noticeable issues and keep the customers engaged.
Proper performances testing is needed to ensure that concurrent users can use the application in the same conditions of availability and response time.
In other words, the answer is an improved and tailored testing solution. One that uses the right combination of automation and educated curiosity (the specific term is exploratory testing), performance testing and the proper tools and skills for each different application.