Illustration of a man at a bank that says "Open Banking"

Over the last couple of years, the term “Open Banking” has been making the rounds in the financial services industry. Is it just a buzzword or is it here to stay?

If you’ve been following Tarabut Gateway, you know all our products are predicated on the success of this framework for the MENA region, starting with Bahrain and the wider GCC countries. Thanks to the Central Bank of Bahrain (CBB), Open Banking is now a reality in the Middle East, with Bahrain leading the charge and Tarabut Gateway at the center of this initiative.

But what is Open Banking?

We think Investopedia does a fantastic job summing up this definition. They define Open banking as:

“A banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs).

Without getting too fixated on technical aspects of “how” Open Banking works, we’re going to tackle the “what” Open Banking aims to solve in this post. If you’re not familiar with industry terms like application programming interfaces (APIs), don’t worry – we’ll cover those in subsequent posts when we explain how Open Banking works in detail. This post assumes no prior technical or finance knowledge.

If you have a bank account (or multiple bank accounts), you will be perfectly comfortable following and understanding the implications of Open Banking.

By the end of this post, you will be able to:

  • Define what Open Banking is and;
  • Define what Open Banking is NOT

We’ve already defined Open Banking above, but let’s break it down further. If you re-read the definition, there might be a couple of words that may jump out at you and perhaps set a few alarm bells ringing. Words such as “third-party” and “consumer data” are widely understood (and misunderstood), often arousing unease and anxiety when we chance upon them. However, the use of data to access information is ubiquitous in our daily lives. Whether we’re downloading a new app, visiting a new website, or trying out a new service – we’re asked to give our consent when it comes to organizations using our data.  With the number of data scandals that have erupted more recently, we understand the raised eyebrows this may elicit from some.

However, fear often arises from a lack of knowledge or misinformation, both of which we aim to resolve at Tarabut Gateway by helping people understand how consumer data is used in Open Banking.

In layman’s terms, Open Banking is simply the use of a single platform that makes banking and financial services experiences more seamless, organized, and beneficial for the end-customer. Customers can manage multiple accounts from a single app, decide how to increase their savings, and find ways to curb their spending – ultimately, it’s giving power back in the hands of people to allow them to make better financial decisions.

Here’s an example we’ve covered in our previous post from a character named Fatima.

So, What is Not Open Banking?

Open Banking is not sharing your personal information with third-party vendors to determine individual persons. Rather, Open Banking aims to leverage the use of big-data by utilizing non-personal information such as your income, spending, saving habits – all without ever identifying YOU as the individual responsible for producing that data.

Think of it this way – imagine rows upon rows of numbers. Numbers that correlate to salaries, number of accounts, entertainment spending, education spending, etc. – all without ever marking who that data belongs to.

Why would companies want to analyze that data?

It’s simple: to create better financial services products to help people manage their money more responsibly and find similar products they currently use. It’s only through analyzing hundreds of thousands of rows of data that companies can actually discern noticeable patterns to create better products. If you ever receive a recommendation for a product or service and think “How did they know I would use this?” – big data is at the heart of your answer and in the case of financial products and services, Open Banking makes it possible.

Once again, through Open Banking, an individual company or third-party provider cannot access your personal information. Your consolidated personal information remains only with you and can only be accessed with strong authentication methods. Tarabut Gateway and other third-party vendors can simply determine a wide array of customer personas based on extremely large sample sizes that help analysts understand consumer behavior.

With that, we hope this post helped you define what Open Banking is and what it is not. We also hope it allowed you to dispel some of the concerns that although warranted, can often be alleviated through a simple and honest conversation. Knowledge is power.

If you found this post helpful or useful, why not share it with your friends to help them understand how Open Banking works? If you have any questions, please feel free to contact us using the contact us tab.

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