Open Banking (OB) has become the norm in banking as banks adopt open integration technologies. Open banking opens a wide range of avenues for banks to leverage their existing ecosystems for commercial advantage through third-party collaboration. These functions are delivered through OB APIs. When merging functionality across multiple service providers, banks can activate features like payment gateways, instant customer verification, or complex and niche financial services on external platforms.
However, not all features have a commercial advantage or revenue opportunity. For instance, customer verification is not necessarily a chargeable service (neither to the customer nor vendor), but it is essential to start using banking services. Revenue opportunities come from the direct use of banking services at scale. With a focus on the revenue-generating opportunities open banking APIs offer, here is a selection of the services banks can provide to promote growth.
Open Banking API Opportunities
Payment Initiation Services (PIS): Third-party channels can initiate payments directly from a customer’s account through OB APIs. This enhances the user experience and streamlines the purchase journey for customers. Transaction fees are the primary source of revenue for banks here, but other financial services like offering credit, overdrafts, or loans also enable more revenue opportunities.
Account Aggregation and Wealth Management: OB, through APIs, allows users to aggregate multiple bank accounts on a single (third-party) platform. It enables the use of financial management tools and services within non-banking, non-financial platforms. The revenue is generated through transactions, subscription fees (charged to the vendor), premium financial services, etc., depending on the platform’s capabilities and requirements, for example, account aggregators, personalized finance, targeted lending and microfinance, and buy-now-pay-later schemes.
Personalized Finance and Recommendations: One of the more significant use cases of open banking APIs is to share customer data securely with third parties. Depending on the banking data available, vendors can recommend personalized financial products for their users. These APIs can be monetized through subscription models, premium advisory services, and commissions from products like insurance, investment products, offers, and discounts. Mitra has worked with a number of financial institutions to deliver open banking solutions, including Komercni Banka, Moneta Bank, and Nations Trust Bank.
Lending and Microfinance: Lending and credit services are a bank’s most lucrative financial services. Open banking allows vendors to provide highly personalized lending, micro-finance, or buy-now-pay-later services directly through the banks. It streamlines loans and credit scoring to accelerate the application process, generating interest payments for banks and/or commissions.
Data and Analytics: Banks have vast amounts of data on their customers and their financial histories. With OB, banks can leverage this data for analytics and research by generating aggregated and anonymized data, which can, in turn, be used to provide advisory services to customers. Either way, subscription models and/or direct fees are methods of monetizing banking data with APIs. Data services also have scope for monetization as they can be used by researchers, financial institutions, governments, and other organizations for research, strategy development, and insight gathering.
Open Finance and Integrations: Commercial and institutional organizations generate the most revenue for the banks. Open banking APIs allow these organizations to integrate financial services, multiple accounts, and management tools directly into their platform (like accounting software, treasury management systems, and ERPs). This enables enterprise-wide financial management and reporting capabilities for organizations. Income can be generated from subscriptions to premium services while also earning through transactions, interest, and advisory services.
Apart from these examples, OB APIs enable multiple other functionalities. Some of them are:
- Identity verification and know-your-client (KYC) compliance
- Fraud detection and prevention
- Bank-to-brands partnerships
- Promotional and marketing capabilities
Open banking using APIs has revolutionized the banking industry. Banks can vastly increase the number of readily available services they offer beyond their own ecosystem, customer base, and service limitations. It has allowed many businesses to provide seamless financial services without actually hosting them, generating growth for businesses and banks and improving the range of services offered to customers. Mitra Innovation has a long history of implementing open banking APIs for banks and the financial sector. Delivering seamless, comprehensive, integrated banking solutions while maximizing return on investment (ROI) is what Mitra does, ensuring our banking clients enjoy the best competitive advantage open banking can offer.