Blockchain is beginning to help open banking succeed.
Blockchain is helping open banking succeed by allowing customers to trust third-party services.
What exactly is blockchain? Blockchain is resistant to modification of the data. This is why it has become so popular within the last year. Blockchain can also record transactions between two parties efficiently and permanently.
Role of Blockchain in Open Banking
Third-party financial services could find success with blockchain. Consumers require trust when it comes to sensitive financial data and many do not find third-parties trustworthy. This is due to that fact that third-party providers have proven to be incompetent and unsuccessful at protecting consumer data. Blockchain technology changes this by allowing a sense of trust between stakeholders in the trust establishment. It does this by producing an immutable ledger of transactions, all of which is shared with trusted stakeholders. When consumers feel trust with their third-party payment service provider, they experience better customer satisfaction. Blockchain has changed open banking by allowing consumers to trust third parties. It is safe to say blockchain and open banking are two popular digital banking trends.
What is Open Banking and Why Does It Matter?
Open banking is used to describe two financial regulations; The competition and market authority’s (CMA’s) Open Banking Remedy and Payment Services Directive 2 (PSD2). These two financial regulations have required businesses to allow customers to share their financial transaction data more easily with third parties. They have also allowed third parties to initiate payment transfers from a customer’s account directly. The biggest benefit these regulations have for consumers is they require businesses to openly share and make public their product information. This information tells the satisfaction scores of the business to consumers, as well as, other indicators about service level.
Open banking is trying to create more competition within the financial market to end customers receiving low-quality services at high prices. Application programming interface (APIs) will allow companies to link their services together and create better customer service. This is important because customers should not have to pay high prices for subpar service.
With the Payment Service Directive 2, banks can no longer hold a monopoly on their customer’s account information and payment services. This regulation is looking to create more competition within the financial services market. Banks are no longer only competing against other banks; they are also working to compete with any business offering financial services. This type of competition stops one company from having a monopoly with consumers. When a company has that much power, they are no longer required to offer exceptional service at reasonable prices. When a company has no competition, they take advantage of their customers and do not provide the expected quality of service. PSD2 is changing the financial market.
The role of blockchain in open banking is important because open banking cannot succeed without consumers trusting third-party financial services. Blockchain allows for this trust between consumers and third-party providers. Open banking is seeking to destroy banks owning monopolies on their customers requiring them to provide better services. Blockchain helps open banking succeed and allows consumers the ability to shop around and choose the service they like best.