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August 18, 2023

The Rise of Open Banking in Fintech: Opportunities and Challenges

Regarding financial technology, open banking is a major game-changer. Find out how this can help your business, customers, and banks.

Mitya Smusin

Chief Executive Officer

As the open banking trend grows in the financial world, many FinTech companies are getting on it. But what is “open banking” exactly, and how does it work?  

Simply, open banking (OB)  lets third-party (TPPs) financial companies observe what users have in their accounts if they have permission to do so. Thus, customers will be able to make more sound choices and have even more control over their own money.

What is Open Banking?

Nearly all of us have already used open banking (OB) whenever transferring money, making payments, checking balances, or viewing transaction history through an online banking app

In simple terms, OB is a service that gives you more control over your finances by entrusting your financial information to a third party for processing. Common examples of third parties include budgeting and savings apps and mortgage broker account connection services. 

What is Open Banking

The significance of Open Banking in fintech

Open banking is a huge step forward in fintech, and every day brings us closer to innovative new solutions. In the past, banks had an edge over their competitors because they had access to customers' financial data. But with OB, fintech companies have the same access to data, which helps them compete with each other.

Open Banking vs Online Banking

While online banking and open banking may sound identical at first sight, there are essential differences between the two. First, online banking enables client access to accounts and transactions, whereas OB grants customers more access and ownership of their data and opens the door to wider possibilities of financial services.

Online BankingOpen Banking
Uses application programming interfaces to simplify communication between programs.Accesses your bank's website or app via a web browser or mobile device.
Has greater authority over your money, access to new financial services, and more competition among financial institutions.Financial flexibility, accessibility at any time, and management from any location.

When using online banking, you can check your account, move money between accounts, pay bills, and do other things. Meanwhile, OB allows you to use a broader selection of financial tools and services, such as budgeting software, savings, and investing platforms.

Why Open Banking

Opportunities and Benefits of Open Banking

It goes without saying that when we use any service, we look for advantages. So, in this context, open banking provides a lot of advantages that we can make use of.

Improved customer experience

First, OB integration can enhance the client experience by providing clients with greater access to their financial data. Through this, users, for example, may link their checking accounts to a financial planning tool. The software may then monitor their expenses and offer advice on how to cut costs. 

Enhanced product innovation

Second, it enables financial companies to have access to fresh data and insights, which can help to improve the rate at which new products are developed. This has the potential to result in the creation of brand-new and ground-breaking financial goods and services.

Opportunities and Benefits of Open Banking

Increased competition and market entry

No doubt granting previously restricted customer data to fintech companies’ OB encourages more competition in the sector and levels the playing field for upstarts. As before, banks have had a monopoly on customer data OB currently breaks down this monopoly by giving TPPs access to customer data. Thus, we witness stronger competition with a burst of innovations and new ideas.

Efficient data sharing

OB enables third parties to effectively share the data, which boosts customer satisfaction. Sharing data is the best way to get the most out of it and budgeting software, even though this may pose several challenges.  

Challenges and Risks of Open Banking

All of the major players in the finance sector stand to gain from OB. Yet, there are a bunch of challenges that need to be faced to value the impact and enjoy the results.

Challenges of Open Banking

Data privacy and security concerns

In open banking, customers' private financial information is shared with outside service providers. As a result, there are real concerns about privacy and safety. Providers need to take precautions to protect customers' data from being compromised.

Regulatory compliance challenges

The most important challenge to overcome remains online banking regulation as there are several rules that providers must follow (like the General Data Protection Regulation and the Payment Services Directive). So, whenever dealing with OB systems this is a must-know and must-obey. 

Integration and collaboration challenges

Next comes the integration and collaboration challenge which is way too complex and time-consuming. But with expert staff and sound decisions, this is a way to go. 

Business model transformation

Finally, because open banking could change standard financial institutions and business models, service providers should be ready to change how they do business. Actually, TPPs take advantage of their ability to offer more flexible programs when charging transaction fees, and we see more rational choices being made as a result. And by granting more access to their finances and data on how they were spent, people now have more choices and thus can control their money rationally. 

Impact of Open Banking on Key Stakeholders

Should we discuss the impact OB has on key stakeholders? Though it's quite obvious, let's talk about the essentials and get some more context.

Impact of Open Banking


First off, with OB customers will better understand their financial status from numerous sources in a centralized location. This will result in a better grasp on their finances, making more informed purchases, and cutting off their expenses. Customers may set up recurring payments, apply for alternative loans, and monitor their spending in real-time, all thanks to open banking.

Banks and Financial Institutions

The second sector that benefits highly from OB is financial institutions. Open banking leads to increased competition thus emerging the need for quality and innovation combined. In addition, the industry may benefit from the data provided by OB to create innovative approaches and provide access to more individualized services. 

Fintech Startups and Third-Party Providers

Last but not least, fintech and open banking have the potential to open up new markets for firms and other outside service providers. For instance, they might create new banking products that take advantage of OB, or they might offer data aggregation and analytics like budgeting apps that help to cut off expenses by providing personalized solutions.

How Yellow can help you with Open Banking

With well-defined requirements for the final product, Yellow will assist you to address every angle of mobile banking in a single, seamless partnership.  Our team is committed to bringing order to the so-called "chaos" of the digital financial market, and as a result, we put in a lot of effort to ensure that the choices we make on your behalf are sound. In addition, our software development team will make certain that the product you desire is well-organized and refined before it is released to the public. That is to say, we provide you with service from beginning to end and of a quality that you would never believe is feasible. 


The rising fintech concept of "open banking" has the potential to alter our approach to financial data. By enabling third-party financial services companies access to customers' bank accounts, OB allows customers greater say over their financial data and sparks new forms of innovation.

Although OB presents some challenges, the advantages far outweigh them. Increased competition in the financial services sector and the development of novel economic goods and services are all possible thanks to open banking.

💡How can banks and financial institutions benefit from open banking?

While open banking has several advantages for the financial sector as a whole, the main one is that it encourages innovation and competition among FinTech businesses by allowing them access to the sector's existing client base and data.

💡How can data privacy and security be ensured in open banking?

Indeed, allowing access to third parties raises the risk to data flow; nevertheless, if precautions are taken, there is no need for concern. That is, if you select an OP provider that follows best practices like employing end-to-end encryption and authentication, setting explicit data-sharing policies, and checking for fraud, you have hit a jackpot.

💡How can open banking promote competition in the financial sector?

When it comes to the financial industry, OB is a true game-changer. First off it stimulates the development of innovative ideas and secondly, it promotes healthier competition. For instance, OB encourages creating Personal Financial Management (PFM) apps and fraud detection, which both increase consumer satisfaction significantly.

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