Big Data In Banking Is Set To Explode Thanks To Open Banking

February 3, 2022  |  Mark Hillary

Banking is an industry that has always been filled with data. Customer transactions are all recorded and statements are filled with payments, purchases, deposits, transfers, and interest. Since the earliest days of banking, customers have always carefully monitored their own transactions, but several developments are making the value of data more important than ever.

Big Data analysis has allowed banks to start observing patterns in their customer data. This can be especially useful for identifying where specific bank products might be appropriate for a customer. For example, a customer that regularly maintains a large balance in a low-interest account can be advised on savings or fixed income products.

In this case, studying the data and the way that customers use their banking products allows the bank to more closely recommend new products or advise on how the existing ones are being used.

However, the international growth in Open Banking could be about to change the role of Big Data in banking forever — making it a central part of the banking experience.

Open Banking is a use of an agreed set of APIs and protocols so different companies can share financial data — when approved by the customer. For example, a customer should be able to use an app to collect together a snapshot of their personal financial situation including a mortgage, loans, savings, credit cards, and investments. Even if all these financial products are held by different companies, the Open Banking API allows the app to retrieve the required data.

This opens new opportunities for banking processes, such as payments. A shopping app should be able to take payment without the need to leave and use a credit card processing service if the customer gives the app permission to access their financial data.

Open Banking means that there will be an increased commodification of the basic service of managing bank accounts. Any financial company can manage an account, but what will really matter in the future is the value that can be added by collecting disparate financial data all in one place and offering innovative and useful services to the customer.

For example, an app could help people to escape from debt problems by automatically prioritizing the most important bills and debts to service. An app could automatically scoop up small unnoticed amounts from a customer’s current account and sweep these small amounts into a separate savings account — so at the end of the year there is a substantial sum that has been automatically saved.

Open Banking generates a lot of data, making the role of Big Data in banking more important than ever. Loan approvals is another good example. If non-financial companies want to offer a loan or delayed payment to customers then they usually check creditworthiness with a credit reference agency. Without access to actual bank account details, this is usually the best option available.

But what if you were shopping with an online retailer and they offered to let you buy products without paying anything now — just pay in three months — if you allow the company access to your Open Banking platform so they can directly check how credit-worthy you are?

It gives a more accurate picture of your financial position, so that is preferable for both the retailer and customer. We have already seen companies like Apple and Google become very powerful in payments — I expect that Amazon and other major online retailers will be offering loans and deferred payment anytime soon — in return for access to this financial data.

Big Data in banking has been an important topic for some time now, but the impact of any initiative has always been limited to individual companies. As customers start blending all their financial products using Open Banking, the opportunities to use data to create new financial products will grow exponentially.

The COVID-19 coronavirus pandemic has offered data analysts some great opportunities to study Big Data trends across the world. Read more about Big Data in a time of pandemic

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