Chances are, you've heard that traditional banking is undergoing some seismic changes. But what others might have forgotten to mention is that you are going to benefit from all of it.

The system of Open Banking is currently the highest grade fuel, powering the major source of innovation in the industry – it will, without a doubt, result in customer-centric financial apps, cheaper and quicker payments, and better financial products on offer.

That’s right, you wouldn't have to worry about spending a little extra on a dessert that goes well with that coffee you’re drinking right now if you saved money at better interest with a smart budgeting application. Your salary could already be sitting in your account if wired through faster providers, you could've gotten a better loan for your car if you used a modern price comparison application, and there were far easier ways to split the tab from last night with the help of payment apps.

And you’re not the only one who is the potential beneficiary of Open Banking. Although some bankers might be spewing out their cigars when seeing the news of European banking regulations, practically everyone in the equation will benefit from the new system. But as only 18% of consumers are currently aware of what Open Banking means for them, one piece of advice is – don’t be ignorant.

Some background

Without a doubt, people have surely been complaining about banks even before their existence. But today they do have a point when it comes to a lack of innovation in the industry. Many banks hold monopolies on their user data, which in the terms of today’s technologies mean that they also have customer minds and hearts stored inside their dusty data servers.

Perhaps because of this safe cushion banks have grown reluctant to innovate. Bank customers remain extremely loyal and reluctant to switch service providers even if they underperform. Only around 3% of British customers change banks each year, astonishingly low numbers. Thus, the main idea of Open banking – force innovation by mandating data sharing across the financial institutions.

Open Banking will result in customer-centric financial apps, cheaper and quicker payments and better financial products.

So, what is open banking?

Open banking is somewhat of a loose definition, but it can be broadly defined as a collaborative system through which customer banking data is shared securely between financial institutions and third-parties. Inherent to the system, seamless communication is provided by a standards-based network of Application Programming Interfaces (APIs). More on that in a bit.

And although that might sound like nothing more than a bit of confusing rambling, according to PwC, a professional services network, open banking could amount to £7.2bn market by 2022 if banks, financial technology startups, credit scoring agencies and tech giants tap into its potential. To gauge what it is all about and why it has become the new normal, consider what came before it.

So, you won’t share?

Before open banking, consumers holding accounts at multiple banks would access each one individually via separate digital interface (such as an online portal or a mobile app). Data sharing between financial institutions was a possibility, but a rare one – the one-off event even in closed groups of trusted partners.

The closest thing available to the tech-savvy that would allow the overall financial situation to be displayed in one place was an aggregation site. Such service would aggregate by asking you to hand over usernames and passwords for each account individually and then from each account they would scrape the data off the service provider screen.

Naturally, this practice has security risks because sensitive information exchanges hands. Also, the results of screen scraping are not always reliable because software scripts fail when changes are made to the original site.

That is where the application programming interfaces – the cornerstone of Open Banking -come in. API is essentially a “go-between” piece of software that interacts with another software. In banking, you can think of it as a set of rules by which a financial institution instructs other financial institutions on how they can acquire its data directly from it, without resorting to data scrapping. It is a sort of digital contract that allows for a secure way to share data between regulated providers.

Open data sharing opens numerous possibilities for many FinTech (Financial technology) startups to build on that data to serve bank’s customers their own services. It also spurs banks to innovate if they don’t want to lose out.

Share it with your little brother!

At the moment, this change is fuelled by legislation. But it could, however, become a self-fulfilling prophecy, once everyone sees past their ignorance and understands the potential.

Regulation-wise, European GDPR and PSD2 directives are surely the slur words of the year, responsible for provoking loads of foul and explicit material - primarily expressed by sharply-dressed individuals shouting at the phone. But they’re by far the biggest regulatory steps towards open banking to this day.

GDPR directive gives European customers more control over their personal data and the definitive right to say what third-parties they want to share it with. A key component of the PSD2 directive is that banks must give licensed third-party providers access to their payment services, and to an account holder’s personal data if the account holder consents.

In time, it is quite clear that more competition with smaller financial institutions will ideally result in lower overall costs, more useful technology, and improved customer service.

Skepticism or Positivity?

But it is reasonable to be suspicious and skeptical of this strategy that involves forcing banks to openly share valuable assets. No organization would share confidential sales activity or individual transaction data – definitely not with potential competitors.