For as long as humans have traded commodities or services for some sort of currency, some form of banking has existed there. Over the centuries, banks have evolved to become a central piece of everyday life. As customer needs continue to advance, financial institutions compete to outwit one another to get a bigger payday after effective service delivery. Further, the introduction of technology to the banking sector has seen it revolutionize to keep up with the ever-changing trends and, consequently, dynamic consumer requirements.
Initially, banking was always primarily a physical affair, but after the financial crisis of 2008, the stability and efficiency of the whole system became apparent. It’s where internet banking began its journey to becoming a modern-day necessity. Today cashless transactions are the order of the day as most services have also gone online. For example, you can play games on sites like Vulkan casino instead of going to a physical casino. Similarly, the market penetration of platforms like Amazon, eBay, and Etsy means you don’t have to shop in person.
Some issues that arise with digital financial transactions are availability, security, and privacy, among others. The decision has now been left to the client and bank regarding which banking system works best – between open and connected banking.
Main Differences Between Open and Connected Banking
Open banking is where banks have complete control of user data and, therefore, have the right to share it with third-party financial institutions and payment service providers. On the other hand, connected or digital banking gives the reins to the consumer, providing them with the privileges to determine who gets to have access to their private financial information. As a result, many have deemed connected banking as more transparent.
Nonetheless, while the two may appear completely different from the outset, there is an overlap regarding the use of APIs and the level of access to the selected dataset. To help you understand open banking and connected banking difference, we’ll look at three main aspects of their operations:
- Consumer needs;
It’ll ultimately be up to you to decide what suits you better after covering these three areas comprehensively.
It’s common knowledge that where there is money, crime always follows, and in the case of digital banking, cyber-attacks are constantly being launched every second of the day. Seeing as users are prompted to allow or deny access to personal information, financial service providers are obliged to provide safe validation procedures to shield users from potential harm.
However, as with any case that entails cyber security, the main threats always lie at the human-machine interaction level. So, that’s why some have argued that open banking may actually be much safer. If you think about it, it’s in the bank’s interest to keep its reputation intact by putting up all the necessary safeguards to prevent malicious hackers from being successful.
- Consumer Needs Customization
Since the bank is in charge of all consumer data in open banking, the process of coming up with open banking solutions may not necessarily be consultative. Instead, it may be a product of boardroom discussions that are more policy-based than tailored to the client’s needs. On the other hand, connected banking has a different approach as the system is developed with the consumer in mind, as they are the main user in the long run. Both have a corporate feel, but the latter is more personalized as it’s been customized to the customer.
In the age of technology, knowledge is synonymous with power, and users want it at their fingertips. Having a transparent system that involves them in the decision-making is a vital part when interacting with service providers, especially those that handle their finances. This is where connected banking has the edge over open banking as the power lies in the client’s hands, and they can execute it without jumping through hoops. Open banking entails decisions made at the corporate level, and as much as the goal is to keep the customer happy, the terms and conditions are entirely at the bank’s discretion.
Once again, both open and connected banking bring something to the table, and the onus is on users to choose. However, for some, the lack of control over one’s information is simply too much to handle, and that’s why they may opt for connected banking, which also happens to be faster when transacting.
On the flip side, customers who fully trust their banks feel more comfortable leaving the heavy lifting to the bank. The banks do indeed have more resources to carry out some kind of due diligence before allowing third parties to access sensitive user data. That said, there has been a shift in how banks execute their strategic plans these past few decades, and it’s all thanks to open banking.