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The banking industry is evolving with innovative financial solutions aimed at improving the customer experience while delivering benefits to stakeholders. An example of such a solution is open banking, which is quickly taking over the financial sector. With the introduction of Open Banking, the financial industry entered a new era. It has posed a challenge to the old systems while providing numerous benefits to the various parties involved, including businesses, consumers, banks, and financial institutions.

In this article, we will delve into the FinTech revolution, based on open banking. Among other things, you will learn from this publication what open banking is, how it works, what are its greatest advantages and why so many FinTech companies are taking advantage of this growing trend in the financial technology sector.

Table of Contents:

1. The Rise of Open Banking.

2. Open Banking vs Online Banking

3. Why is Open Banking so Important?

4. Open Banking benefits for banks and financial institutions.

5. Main Benefits of Open Banking for Businesses.

6. Benefits of Open banking for Customers.

7. What are the disadvantages of Open Banking?

8. What are the Security Risks Associated with Open Banking?

9. Final Thoughts - Is Open Banking the future of FinTech?

The Rise of Open Banking

First, we will take a closer look at the concept of open banking. It refers to the use of open application programming interfaces (open banking APIs) that allow on consumer financial data to be shared over a secure network and integrated systems that consist of several financial institutions only with the express consent of the customer. The first encounter with open banking was in 2015 with the entry into force of the regulatory framework, such as Payment Services Directive 2.0 (PSD2) in the European Union. This has enabled banks to shift from being data stewards to viewing customer data as an asset.

Thanks to open banking, customers can confidently use a wider range of financial products and services that are tailored to them. The potential benefits of open banking are many, and one of the most promising is improving customer service.

Open banking is a powerful ally of traditional banks, as it helps older financial institutions to modernize and keep up with the ever-changing financial market. Banks can begin to see themselves as platforms that provide banking-as-a-service by embracing open banking via API-led connectivity.

financial services industry





Open Banking vs Online Banking

As mentioned earlier, open banking refers to the sharing of open-source APIs between financial institutions and other third-party application developers. It should not be confused with online banking, as it refers directly to the account holder's ability to access financial information and make non-cash transactions via mobile or web applications.

the difference online vs open banking

Why is Open Banking so Important?

The development of open banking has been fueled by consumers' growing awareness of how companies handle private data and their desire to use more personalized services from financial institutions.

As previously stated, open banking entails allowing customers and businesses to seamlessly use third-party applications to improve their daily lives.

The importance of Open Banking

How can Banks and other Traditional Financial Institutions Leverage Open Banking?

#Cooperation with FinTech companies

In order to stay up to date and stand out from the competition in the dynamically changing financial world, banks and other financial institutions often cooperate with representatives of the financial technology industry, which in turn allows them to keep competitive advantage and use innovative FinTech infrastructures.

Open Banking solutions also enable the exchange of data between banks and FinTech firms using APIs, which has a positive impact on expanding knowledge in the field of technology by banks.

#Increased customer involvement

Due to the high competition in the industry, banks and financial institutions are forced to move their offers to the online world, as well as to accelerate and improve them to meet customer expectations. Currently, it can be seen that they are developing an increasing number of mobile applications that provide easy investment opportunities. Customer loyalty, satisfaction and engagement can increase if digital transformation is successful.

#New cutting edge financial technologies

Currently, banks can take advantage of new ideas and innovations that are being implemented on the markets by companies specializing in financial technologies because before it was not possible due to lack of funds or motivation to invest.

Main Benefits of Open Banking for Businesses

Open banking enables businesses to use a variety of payment service providers. We have compiled the best benefits of Open Banking for Business below.


Businesses can learn more about their customers' finances and habits. Having this information enables to provide them with more personalized services.

#Higher conversion rate

Better customer service can also positively impact on conversion rate as customers are more likely to choose payment gateways with a simple, convenient payment flow and multiple payment methods to choose from.

#Lower fees and reduced costs

Open banking allows companies to pay less for transactions because it eliminates card-based systems. This solution also assists businesses in entering the market and providing competitively priced services.

#Express payments

Open Banking technology enables to provide a faster alternative and collect one-time payments quickly, easily, and securely. Payments are made directly from bank to bank, eliminating middlemen and making the process simple, direct and seamless.

Express paymnet by code qr

Benefits of Open banking for Customers

Considering consumers, they can also benefit from open banking, gaining valuable assets like:

#Full control over financial data

This data sharing is completely under the client's control. He determines who has access to his bank information and the level of access. This ensures that the third-party provider only has access to relevant information.

#Reduced running costs

In order to increase their attractiveness to potential consumers, most financial service providers are more willing to reduce the cost of their services. This is different from the pressure imposed by competition.

#Smarter managing of personal finance

Data from multiple bank accounts can be displayed in a single streamlined view or app using Open Banking. The information and data collected from this unified view can be used by third parties, with the customer's express permission, to recommend better products and financial practices, or to provide customers with money-saving advice.

Benefits of Open banking for Customers

What are the disadvantages of Open Banking?

Every technological advancement has two sides, and open banking is no exception. There are numerous disadvantages to it. 

#Uncertainty about transaction ownership

When conducting open banking transactions, financial entities frequently form a chain of intermediaries, making it difficult to determine who truly owns customer data. As a result of their cross-border operations, these entities may fall under different jurisdictions. This, in turn, creates a problem because when data is compromised, it is often unclear who is to blame for the data breach.

#Data Leakage

Open banking is based on extensive data transfer via various information channels. Financial institutions, just like banks, must constantly transfer data to one another via digital APIs; however, the increased transmission of sensitive data raises the possibility of hacker attacks, which can be extremely dangerous and costly.

Data breaches

What are the Security Risks Associated with Open Banking?

Many consumers and financial institutions have doubts about open banking in terms of security because nowadays, many applications are vulnerable to a cyberattack or leakage of sensitive and financial data.

Open banking platforms use the highest security systems to encrypt and protect user data, and third party service providers are subject to strict regulations and rules that they must comply with.

Furthermore, open-source APIs are regarded as among the safest because app users do not need to enter account information across multiple platforms. This is achieved through screen scraping, which allows a website or app to automate the extraction of data.

Open Banking security risks are minimized also thanks to the user's full control over the privacy settings of the information they share in their profile with third-party providers.

Security Risks Associated with Open Banking

Final Thoughts - Is Open Banking the Future of FinTech?

Innovation, market competition, and more appealing services for end users that improve satisfaction and better customer engagement are all essential components of the open banking foundation.

Opportunities arise in open banking from the large amounts of data held by financial institutions, the majority of which is stored rather than used to drive innovation.

The user's consent to process and use the shared data is a necessary access requirement that serves as the first layer of security and is critical to the operation's success.

Open banking is clearly improving FinTech, and this trend will only continue in the coming years. Financial service providers will need to embrace open banking and big data in order to provide the best possible services to their customers.

Interested in developing a tailored financial products and services?

Railwaymen, as an open banking service provider, offers innovative solutions, making it easier to deal with processes such as invoicing, payments and helping to maintain cash flow. 

Contact us to explore the open banking app options that suit best for your FinTech company.

For the examples of the projects that we have worked on, follow our Case Study Section!

If you are interested in the topic of open banking and API integration and would like to know more about how modern banking solutions affect customers and financial institutions, be sure to read our e-book "The future of banking: the impact of open banking and API integration", which contains answers to these and other questions. Thanks to thought-provoking analyzes and case studies, you will stay up to date with the latest trends in banking.


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