Banks may need to share information with other financial institutions sooner than they thought. That will cause companies to finally embrace the cloud.

At some point over the next few years, banks will be required to relinquish control of the client information they now hold. They’ll have to share financials, credit rating information, product preferences and more with other financial companies – competitors and FinTech startups – and give customers the ability to pass their data over to whomever they want. If that seems like a stretch, then you haven’t heard of open banking.

Open banking may sound like nothing more than a buzzword, but it’s a real framework, and it’s about giving consumers control over their financial data. Right now, if someone wants to open an account at another bank, they have to do the same onerous paperwork they did when they opened previous accounts. If they are looking to get a business loan, they have to take whatever interest rate their bank gives them instead of shopping around and finding the most competitive rate.

With open banking, that same owner might open the app of a third-party lender and request a loan. That company would then ask the entrepreneur’s bank for their financial information (this is all done by way of an API) and receive it in an instant. The lender would then present a rate right away, which the owner could then accept. The loan would then get transferred into their account. Or, imagine if individuals could instantly get approved for a mortgage instead of having to fill out reams of paperwork. That’s possible in an open-banking world.

Banks around the world have been resistant to open banking, and it’s understandable because they don’t want to make it easier for people to be able to use other companies for their personal and business banking needs. However, there is actually a lot to be gained for the bank, too. It opens up an abundance of new partnerships – perhaps that lender can provide products through the bank that the bank isn’t able to offer on its own – and it will create a better overall experience for its customers.

Embracing the cloud

A major benefit of open banking is that it will cause financial institutions to finally view cloud computing as an alternative to relying on on-premise servers. For a long time, banks have avoided shifting their own processes and programs to the cloud. According to a 451 Research survey, only 18% of financial services organizations and banks are fully deployed on the cloud, while 70% of respondents said that their cloud projects are only in the initial or testing phases – but they’re going to have to embrace it when they adopt a more open banking system.

This is because the information shared between institutions will be done virtually, over the cloud and through APIs. That third-party financial company, which will likely already be operating in the cloud, will send a message to the bank requesting information. The data will then be quickly and automatically sent back to that other business, all through virtual servers.

This is a benefit to banks, even if it may not seem like it at the outset. Cloud computing makes it easier and faster to innovate, it allows companies to serve their customers better and, through open banking, it will make it easier for companies to offer a wider range of services.

Don’t get left behind!

At the moment, open banking is more of a concept than a reality in North America. Governments in the U.K., the European Union and Australia have created legislation that forces banks into open banking – they weren’t going to budge otherwise – but the rollout has been slow and complicated. Canada is looking into open banking, too, but it hasn’t mandated anything yet.

It’s only a matter of time, though, until banks do share information – consumers will demand it- especially now, with the rapid and widespread digitization that has come as a results of the COVID-19 pandemic. They are demanding more seamless financial experiences, and they want to bank and transact with ease (and without having to be physically present in a branch). As people use a greater number of cloud-based apps and programs – whether it be Uber, Lyft, Airbnb or Skip the Dishes – they’re going to expect a certain level of service. For example, waiting days for a mortgage approval isn’t going to cut it anymore.

Banks should jump at this open-banking opportunity now, before they’re either forced to do so or get left behind.

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