By Omri Dor/ Obligo
Open Banking has been one of the trendiest buzzwords in Fintech in recent years. The promise was enticing: banks would lose their monopoly over financial data and consumers would be free to share their data with new vendors, leading to innovation and competition.
The good news is that Open Banking is already a reality in many countries, including the U.S, thanks to a successful combination of regulation and private enterprise. The bad news is that innovation has been slow to follow. So far, the main use case for Open Banking has been trivial: to allow consumers to view their banking data on 3rd party apps. These apps are slicker than the banks’ official apps, but is this the revolution we’ve been promised? Snazzier pie-charts?
But innovation is accelerating. A more interesting application of Open Banking is the ability to underwrite businesses and consumers quickly and accurately, relying on banking data. New digital lenders are able to originate loans at low costs, even to expats with no credit history, by relying on data made available through Open Banking.
Other applications of Open Banking are even more surprising. Among them I hope to count the company I co-founded, Obligo. Many apartment buildings in NYC are now free of security deposits. In such buildings, renters only provide their landlord with a ‘billing authorization’, authorizing the landlord to charge them up to a pre-agreed amount. Obligo facilitates this and assumes the credit risk. It is thanks to the power of Open Banking that Obligo can profitably underwrite and backstop such a high volume of standby-credit transactions.
So yes, Open Banking is starting to deliver real innovation, improving our quality of life and giving financial control back to consumer hands, but innovation is only half the story. For the first time in decades, consumers are seeing fresh, motivated, friendly, relatable brands in the financial services sector. The public is slowly beginning to trust that there are financial products and services out there that are here to empower them, rather than take advantage of them. Perhaps this has been the promise of Open Banking all along.