What is an open banking platform?
Open banking is evolving rapidly toward the highly relevant distribution of information from a platform. Four types of platforms exist, of which the proprietary and licensing platforms are most common in the banking industry.
Advancing technology, regulatory requirements, and increased competition in the financial services sector are driving the acceptance of open banking. Practitioners of open banking share specific customer data with third parties, generally for the purpose of offering their customers new services through a network of providers. Traditional banks are vertically integrated organizations, but open banking provides them with an opportunity to extend their market reach and generate new revenue streams outside the confines of their own organizations.
Open banking is evolving rapidly toward the highly relevant distribution of information from a platform. Four types of platforms exist, of which the proprietary and licensing platforms are most common in the banking industry.
Types
A platform with one sponsor and one provider is known as a proprietary platform. This platform uses a bank's application programming interfaces (APIs) to provide account information to service providers, allowing them to offer their products to the bank's customers.
A platform with many sponsors and one provider is a joint venture platform. This platform is not common in the financial services industry. It encourages collaboration among its sponsors with the aim of developing and controlling a shared API.
A platform with one sponsor and many providers is also known as a licensing platform. The purpose of this type of open banking platform is to develop financial products for consumers from bank and nonbank providers under the sponsor's brand.
A platform with many sponsors and many providers is a shared platform. No single party controls the development of this type of platform, but multiple parties can deliver products to end-users. The programming language Linux would be a nonbank example of such a platform.
Summary
Open banking is encouraging banks to develop innovative solutions that improve their functional, organizational, and technical capabilities. An experienced platform provider can help banks implement solutions tailored to their particular needs.
