A substantial shift in the financial landscape is taking place — it is ushered in by open banking, which stands as a transformative force in the financial industry. It brings a more unified, agile, and customer-focused methodology in both banking and payment services.

Over 11 million UK payments were made using open banking technology
in July, more than double the number during the same month last year.

While traditional banking systems have been foundational to our economies, they have inherent limitations in the face of rapid digital transformation.

Here, we explore the advantages of open banking compared to traditional banking and payment methods.

#1 Enhanced Customer Experience

Open banking platforms offer a centralised and intuitive user interface, giving customers a holistic view of their financial data across various banks and accounts. Seamless interactions, faster payment processing, and tailored financial insights enhance the overall user experience.

Meanwhile, customers using traditional banking often navigate multiple platforms, each with its unique interface and login credentials. This process can be cumbersome, especially for those with accounts from different banks.

#2 Financial Transparency and Control

By allowing third-party providers access to financial data (with user consent), open banking promotes transparency. Consumers can easily track, manage, and analyse their spending from a single platform.

On the other hand, insights and analytics in traditional banking are generally confined to individual bank platforms, limiting a holistic financial overview.

#3 Innovation and Services

Open banking fosters fintech innovation. Developers can harness open application programming interfaces (APIs) to create innovative financial tools, from smart savings apps to automated investment platforms.

Meanwhile, traditional banks typically offer a set range of services, with limited scope for customisation or integration with external tools.

#4 Improved Payment Efficiency

Instant payments, reduced transaction fees, and real-time payment status updates are characteristics of open banking payment systems. The Payment Initiation Service (PIS) supports direct bank-to-bank payments, removing intermediaries.

Payments in traditional banking, on the other hand, might involve multiple intermediaries, each introducing potential delays and fees.

#5 Enhanced Security

Modern open banking platforms utilise top-notch encryption and security protocols, with tokenisation ensuring data safety. Strong Customer Authentication (SCA) adds another layer of transaction protection.

While secure, traditional banking methods might be slower to adopt the newest cybersecurity innovations.

#6 Customizable Financial Solutions

With open banking, banks and fintechs can collaboratively design tailored financial products, addressing specific user needs. This adaptability encourages a competitive market, ultimately benefiting consumers. 

Lasma Kuhtarska, a Strategic Consultant at Noda, mentioned that the company is developing unique payment features such as Noda Touch, Noda Share, and Noda Go, designed for the travel and e-commerce sectors.

Traditional banks, on the other hand, often offer standardised products, limiting customisation based on individual customer preferences.

#7 Global and Cross-Border Services

Open banking platforms simplify cross-border transactions, serving a global customer base and facilitating multi-currency operations with transparent exchange rates. Noda, for example, operates as a global, multi-currency open banking solution, currently partnering with 1,650 banks across 27 countries.

Traditional systems’ cross-border transactions might come with higher fees, extended processing times, and less transparent exchange rates.

Conclusion

Though traditional banking systems have been vital for decades, the digital age calls for a more cohesive, adaptable, and user-focused approach. Open banking, with its plethora of benefits, seems set to spearhead the future of finance. As consumers, businesses, and financial institutions acknowledge its potential, a shift to a more open financial ecosystem appears inevitable.

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• Source: https://www.finextra.com/blogposting/25008/open-banking-vs-traditional-payments-the-future-of-finance?utm_medium=rssfinextra&utm_source=finextrablogs