The Importance of Digital Currencies in the Coming Open-Finance Age

Nischal Shetty August 31, 2021

Finance, money, and technology are three crucial things in our lives that go hand in hand. When we did not know the concept of money, trading came in handy. With evolution, the methods have changed too. Trading for food evolved into trading for commodities.

Commodities turned to fuel, and today, we trade everything in exchange for paper, also fancily known as currency. With technology, transactions and trading have been easier and safer. Even if one steals your credit card, you won’t lose anything.

With this security in hand, today’s world is moving towards Open financing systems with the help of digital money.

What is open finance?

Available finance was started in the UK by the Financial Conduct Authority (FCA) in 2018. This created a wave of innovation in the industry and opened a lot of opportunities.

Before we had our financial data at our fingertips, Banks had control of everything relating to our money. From applying for a loan to a simple transaction, everything had to be done manually at the bank. This limited the opportunities and information we had over our finances – which meant that the people were not technically aware of their finances.

However, today’s technology offers a daily customer way more. With just a fingertip, you can easily access all your transactions, your incoming and outgoing money, and even apply for a mortgage while lying in your bed. From virtual assistants to home deliveries, everything is categorized for an average bank account holder.

Available financing is a step forward in the same direction. Individuals can share their financial information with third-party Application Programming Interfaces, APIs for easier and safer transactions.

In simple terms, with your agreement and approval, the APIs will have access to your financial footprint. This way, each of your different financial needs can be attended to in a more personalized way based on your data. Hence, instead of the companies just having access to your credit card data and scores, they will also have information over your investments, policies, and utilities.

Win-win for customers and companies

Open finance systems allow the customers to have better transparency with the companies they do business with. The customer has access to their own personal finances the way they never had. Each customer gets a PFM tool that will help them analyze and understand the accounts better and make any changes in lifestyle if needed.

With multiple options in the market catering to their needs, the customers have the privilege to choose whichever company suits best for their financial needs. They can easily compare products from multiple brands and have the upper hand over their finances from day one.

It’s a win situation for the companies as well, as targeting their audience is much easier. Marketing can be personalized towards the customer’s needs. With access to all the information about utilities and credit cards, companies can cater to their customers with their services. Unlike old times where companies had to go through time-consuming processes to track their information, they don’t have to anymore.

With the customer’s trust, available finances allow a faith-based bond between the two parties. For more in-depth insights, lenders can choose machine learning and other software. However, companies might also face fierce competition. Heavy marketing and constant updating of their services would be mandatory as they have a million options to choose from.

CBDCs will change the course of Open Finances.

Central banks worldwide have adapted CBDCs- Central bank Digital currencies that they will create and own. A country’s central bank oversees this digital currency. This adds to the trust that bitcoin lacks as CBDCs are fully powered by the state governments. A survey by Forbes revealed that 80% of the world’s central banks are currently shifting towards CBDCs.

Unlike PayPal and other electronic payments today, the money will be transferred from the senders to the receiver’s account almost instantly with the bank’s very own digital currency. Even though the funds are shown on the customer’s account when they receive the money on PayPal, it usually takes 60 days for the actual transfer – they are transferable and reversed hence. On CBDCs, these transactions can’t be reversed- this means that the blockchain space and real-life finances are now closer to each other.

With the help of digital currency in open finance, transparency is not just an advantage. The companies that deal with millions of dollars of goods and services can easily make vendor transactions. With the help of digital currencies, international transfers do not need high fees or currency conversions, which will soon revolutionize the world’s finances.

Vendors and customers will have access to process their funds any time of the day, making real-time banking easier. Digital currencies will help monitor frauds and spending tracking on the customer’s end, thus ensuring improved precision.

Digital currency adaptations will also mean that companies will have to offer their customers user-friendly interfaces to ensure brand loyalty. This means that the customer and the vendor can access all their financial information under one umbrella.

The critical reason why digital currencies will soon replace cash is that they’re accessible to everyone – even people with no bank accounts. Digital payments can be made anywhere and everywhere, and unlike money, they do not require extra charges. The unbanked sector of society will find this easier to use, and this will drive the growth of digital currencies in open banking.

Digital currencies are the next happening thing

Digital currencies like Bitcoin have caught the world’s attention in the past four or five years. But they have been around for more than a decade. There were times when intellectuals traded thousands of bitcoins for a pen drive as well.

Good for us, the times have changed drastically.

PayPal has already begun allowing more significant transactions for customers using their cryptocurrency. These customers can make international payments in millions. The world’s two biggest cards – MasterCard and Visa have adapted crypto. Facebook is soon launching its crypto project, Libra, which will have US dollar stablecoins by 2022.

Tesla owner and world-renowned entrepreneur Elon Musk recently bought one and a half billion in Bitcoin. JP Morgan and Tesla and just some of the companies that have announced their Bitcoin. The world is moving towards digital currencies.

The US joined the Open finance trend, too, after California’s Consumer Data Act (CDA) led to a federal proposal. Banks from around the world, including Nigeria, Kenya, Australia, and Mexico, have catalyzed the transition, making open banking and Open finances accessible to all the citizens in their country.

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