Open Banking and Crypto: An Unexpected Duo that Can Actually Work

At a first glance, Open Banking and Blockchain are two technology breeds that have been speeding like two supercars in parallel lanes. A drag race of two ideas that have redefined the way we understand and consume financial data, freedom, and decision-making.

Nobody has ever talked about how those ideas intersect, how they meet, and what they can possibly mean for each other. But first, it is important to understand what exactly open banking is.

What is Open Banking?

Open Banking is a concept that started a revolution in the banking industry, by allowing customers to share their financial data with regulated third parties through APIs (application programming interfaces) developed by the banks.

Until the arrival of open banking, this information was exclusively available to banks, who haven’t done much to maximize its use to provide extra value to their customers. On the other hand, third-party providers are constantly developing new use cases to make the most out of customers’ financial data.

With easy and secure access to real-time information on transactions and the possibility to initiate payments, third-party providers can offer a whole new portfolio of features and services to banking customers.

One of the most common use cases is Personal Finance Management apps (PFM), which allow users to manage and interact with their finances on the go, in one single place.

Essentially, with the arrival of open banking, customers went from a fully closed ecosystem (traditional banking) to an open ecosystem that gives them more freedom and options when it comes to their financial data.

Is Open Banking the Key to Unlocking Crypto?

What most people don’t realize is that cryptocurrency is no longer a fringe idea or a cult-like experiment. To give you some context, in April 2021, the Bitcoin market cap reached an all-time high and had grown by over 1,000 billion USD.

Despite its huge adoption and success, crypto still has some ways to go to become mainstream. The bonds of trust and habit between people and traditional banking are too strong for people to fully migrate to crypto and blockchain-built solutions.

Even when people want to enter the crypto world, the first interaction is quite clunky. Most exchanges accept card payments or manual bank transfers. In both scenarios, the user experience is poor because:

• Funds take a few days to settle
• There are fees included in these transactions
• Currency prices change until the process is finalized
• They are prone to fraud and error

Enter open banking.

Open banking is the lubricant to the crypto onboarding friction. A digital protocol that removes all the security challenges that have been associated with digital payments. Free from legacy payment prerequisites, it allows users to use their bank accounts to transfer money directly.

How Open Banking can Work in a Crypto Environment

By implementing the open banking protocol, payments are seamlessly redirected to the user's bank site at checkout. After that, it's just a matter of completing the authentication process, and you are taken back to the original page.

Apart from being a very easy process to follow, seeing the environment of the bank they trust creates a sense of security for the user. Going back to the authentication step, open banking simplifies the once cumbersome, multistep process.

How? The customers can confirm their identity via biometric solutions, either with a fingerprint or by face recognition. Fast, easy, and without any compromises on the level of security they receive.

Open banking is the ideal technology to integrate with crypto exchanges because:

• No information is shared, as it uses single-use access tokens and an industry-standard API.
• The user can log in with their bank app, which means authentication is built natively.
• Crypto exchanges can prove the source of funds going in and out of the platform to regulators.

Open banking is the technology that can sway customers to use crypto more freely, as it seamlessly integrates a banking experience they are familiar with. The benefits of open banking are still not as evident as they should be, but time is on the digital protocol’s side. The more the initiative is adopted, the more people will get educated on its benefits.

Open banking and crypto are a match made in heaven, and this will become more evident in the near future.