Open banking implies the electronic exchange of consumers’ financial information via Application Program Interfaces (APIs). This practice enables other parties, such as other banks, non-bank financial institutions, and other financial service providers, to openly access customer banking data.
Open banking requires banks and creditors to exchange customers’ information to provide consumers with individualized services tailored to their specific demands and financial circumstances. It is feasible to do so while ensuring openness, privacy, integrity, and security by utilizing blockchain.
By evaluating aggregated data, financial institutions and third-party service providers can gain a more realistic assessment of a consumer’s economic state. When giving loans, for example, such information may indeed be utilized to evaluate each customer’s risk levels and terms.
A decentralized ledger that stores record and manages user/owner permissions. The blockchain characteristics of openness, privacy, integrity, and security are ideal for use in open banking. Let’s take a look at each of them individually:
The four Blockchain elements outline what open banking should be. Applying blockchain as a platform to exchange information with third parties in a safe and transparent manner makes sense in a world where it is legal to do so. Currently, each financial institution has its own internal system that stores consumer information. Because open banking necessitates the opening of APIs for other financial institutions to consult on the customer’s information and it only makes sense for it to be in a decentralized and shared platform.
A decentralized platform with global APIs. The central bank will be able to monitor financial institutions in accordance with their regulatory requirements. Smart contracts will ensure that they adhere to the procedure. The consumer will also benefit from having control over their own data, authorizing information to be shared and accessible with F.I.s that want access to tailored and improved services. In this approach, the customer has complete control over all of his data, with the ability to grant and deny access at any moment.
We may conclude that linking together financial institutions, regulators, creditors, and governmental organizations in a blockchain network simplifies the central bank’s regulatory reach. The strength of information centralization, along with privacy, security, authorization access, and openness, lends credibility and integrity to financial services. It also makes it simpler to track and update financial services provided by financial institutions, which reduces fraud-related activities. Customers have more financial power, allowing them to choose whether to provide or remove information access, resulting in more fair competition.