This opens up a lot of possibilities for improving banking, particularly customized, individualized solutions for every aspect of money management. As society recovers from the coronavirus pandemic, this includes fraud prevention for the vulnerable, as well as assistance in managing finances and obtaining a mortgage for people with an unpredictable income.
“Open Banking,” in which customers allow third-party providers to utilize their bank’s financial information to inform new goods and services using technology known as Application Programming Interfaces, is one of the key drivers of this transition (APIs).
Now, after the last years and the global impact of the coronavirus pandemic, it’s a good time to consider how far Open Banking has spread. Tenemos and the Economist Intelligence Unit (EIU) collaborated on a new analysis that offers four key takeaways on our journey toward Open Banking:
For today’s banks, innovation is critical. They are under severe cost pressures, facing tremendous competition, and have skyrocketing client expectations. They can only meet these difficulties by providing customers with fresh and differentiated products, services, and experiences.
- Global banking executives want to transform their business models into “genuine digital ecosystems” in 45 percent of cases. This entails providing clients with both their own and third-party products and services, as well as embedding their offers on their partners’ platforms.
- The use of their own data for improved customisation is a major goal for 32% of respondents when it comes to Open Banking.
- In Europe, as well as certain Asian and Latin American countries, regulation has been the primary driver of Open Banking. Market factors and new competitors such as the major technology have driven it in other countries, such as the United States and China.
- The Covid-19 pandemic has bolstered Open Banking and the financial technology ecosystem, and established institutions may be the largest winners if they implement sufficient technological strategies to compete with nimble newcomers.
Open Banking gives you the chance to do just that.
More than half of those polled for our 2020 research were in the C-suite, and Open Banking projects were mentioned as their preferred innovation strategy by 29% of respondents. In addition, 45 percent of executives stated that they want their banks to become “digital ecosystems,” which requires Open Banking.
Nordea, a Nordic bank, is an example of an early adopter and one of the most visible companies in the Open Banking field. It has teamed with fintech Tink to provide its customers with a holistic view of their money, including mortgages, savings, loans, and current accounts including those from other banks.
Regional progress Varies
The United Kingdom is regarded as a pioneer in the field of open banking. It has followed a regulatory-driven strategy, giving its largest banks early deadlines to create the necessary infrastructure.
The Open Banking Implementation Entity (OBIE), which cost at least £60 million, was also supported by the UK’s nine largest banks. According to the OBIE’s most recent annual report, the UK’s Open Banking system has over 3 million users, with over 700 organizations already participating or planning to participate.
The European Union’s Open Banking strategy includes PSD2, which focuses on regulation. While legislation mandates that banks build APIs to interface with third parties, no clear instructions on how to do so is provided.
As a result, Open Banking has proven to be successful in a number of EU countries. In Belgium, for example, KBC has released a multi-bank app that integrates with partners such as PayPal. Some EU member states have a long way to go, and Open Banking has run into problems across national borders.
After COVID-19, what’s next?
The coronavirus outbreak has accelerated the digital banking revolution by years. Consumers are increasingly embracing digital platforms and are less inclined to use branches or cash. This is going to be a long-term trend.
The pandemic has provided a significant push to Open Banking. Between April and September 2020, the number of users on the UK’s Open Banking platform more than doubled. Meanwhile, a study conducted by the OBIE and Ipsos MORI found that 50% of SMEs surveyed have started utilizing Open Banking since the outbreak began.
Consumers also express a desire for Open Banking to expand. This includes making it easy to examine recurring subscriptions, bringing together information on pensions, allowing for instant money transfers between accounts at different banks, and organizing expenses into buckets to aid in better comprehension of spending.
Future success will be dependent on digital technology
According to our analysis with the EIU, 87 percent of countries have implemented Open APIs in some form. The foundations are in place, but Open Banking can only be successful and long-term if consumers trust it.
Consumers must see a clear value in providing their personal information. As open banking takes off, this implies distinct, customized solutions as well as stable, dependable systems capable of handling high spikes in demand and offering speedy service.
They must have faith that their information will be kept safe. According to a recent ING International Survey, only 30% of European respondents were happy with firms sharing their data, even with their agreement. Similarly, the Federation of Small Enterprises in the United Kingdom discovered that the majority of businesses were “wary” of electronically sharing banking data.
Many banks’ complex, legacy IT systems are unable to provide this level of assurance. They have a high level of operational risk, which means that new services cannot be offered in a seamless manner. They lack the ability to quickly develop and launch products, as well as the ability to innovate and offer bespoke, hyper-personalized experiences.
Banks must adopt an end-to-end digital infrastructure for Open Banking to flourish.