Open Banking is fundamentally redesigning the financial industry, bringing about significant implications and transformative changes. Characterised by the secure sharing of customers’ banking transaction data and, increasingly, their payment rails through standardised APIs, this technology empowers third-party competition and innovation, and the delivery of more personalised financial services (FS) to significantly improve customer experiences.
This model is maturing rapidly, expanding in tandem with market forces and regulatory mandates (see graphic), alongside elevated customers’ expectations for seamless and personalised experiences across all aspects of their lives. Further spurring growth are vanguard digital disruptors capable of addressing these needs with their customer-centric, innovative financial offerings.
Open Banking has witnessed the most traction within payment rails — enabling customers to initiate real-time payments from their accounts, aggregate multiple accounts for a holistic view of finances, and integrate between digital wallets and bank accounts for seamless payments. An instance of one such application is the UK’s HM Revenue & Customs (HMRC) which embeds Open Banking payments for its tax receipts and received 4.5 million payments totalling GBP 12 billion (USD 14.5 billion) within the first two years of launch.
With markets abuzz with a plethora of activities and regulators nudging further development, it’s no surprise that the Open Banking market is projected to expand at a robust CAGR of 23.4% from 2021 to touch USD 123.7 billion by 2031.
With customers demanding friction-free and tailored experiences, Open Banking is just the start of a new way of delivering digital solutions. Building upon its principles is Open Finance — this extends data sharing across a broader array of offerings to craft interconnected ecosystems where customers can access and manage more of their financial needs seamlessly through a unified platform or app.
By enabling cross-industry collaboration to combine different information sets, Open Finance dismantles the silos traditionally separating different areas of financial services for providers to craft new offerings. It’s no longer a case of banks just crafting and distributing financial products, but also offering these as collaborative, embedded FS within platforms or marketplaces.
This has far-reaching implications for:
Customer empowerment — Open Finance provides customers with a holistic perspective on their finances and greater control for more informed choices to enhance their financial well-being.
Data analytics and insights — FIs may now leverage AI and advanced analytics to gain a more accurate assessment of customers’ digital financial footprint to drive credit decisioning and personalise offerings.
Entry of digital-first challengers — leveraging their tech prowess and customer-centric approaches, fintechs and bigtechs are pursuing new pathways to enter the financial arena.
Ecosystem collaborations — this open concept provides fertile ground for partnerships to foster innovation, improve the economics of integration, enhance service delivery and business agility, and create new routes to market.
Building on this progress, some enterprises are taking their journey even further to Open Data, enabling open sharing of data for tailored value-added services and new business models. An example is the European Commission’s framework for accessing financial data beyond payments in the EU. There’s also momentum in Australia with data portability extending across various financial offerings to insurance, superannuation, investments and credit information, and deeper into utilities and telecom.
Achieving Open Banking and Open Finance requires FIs to leverage an arsenal of tech tools to collaborate to enhance their infrastructures efficiently. Equally crucial is to deliver engaging, hyper-contextual, in-the-moment digital-first propositions to customers.
EY teams estimate that up to 65% of the industry’s IT budgets presently go towards maintaining and sustaining today's systems and infrastructure, rather than more novel ‘change the bank’ innovation. Many struggle with core legacy and closed architectures that not only present structural and security risks but impede the adoption of Open architectures to connect with third parties, transform business models, and tap into greenfield opportunities.
As the industry transitions into Open Data and competition intensifies, pressure mounts to evolve towards nimbler solutions. Here, a versatile platform where FIs can swiftly design, build, launch, and improve propositions enables more effective participation in the emerging Open Data ecosystem.
This should ideally combine APIs, modular technology architecture, and microservices to deliver discrete, individually deployable, and vendor-agnostic components. By plugging-and-playing components and technology accelerators, banks could reduce build effort, cut development cost, and scale more effectively. A cloud-native platform would further ease integration with third-party products and enable FIs to flexibly launch and evolve new products at the speed of shifting customer expectations.
Agendas must also extend beyond this tech element, with the inside-out digital transformation that permeates every level of the FI. Amongst others, driving ‘Openness’ requires executive-level sponsorship to recalibrate strategies for new delivery approaches and realign the corporate culture. Also crucial is to monitor and manage emerging challenges (e.g., from ecosystem partnerships and security risks), and engage closely with regulators as Open regulations evolve.
Open Finance lies at the heart of the future of Financial Services that is seamless, yet connected and purposeful.
As we embrace a new world where data is more insightful and ‘Openness’ becomes expected, financial providers must utilise this concept to harness the data, technology, and advanced insights to deliver elevated customer-focused outcomes and new revenue streams. Only then, would it be a win for all ecosystem participants.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Sanjeev Chatrath, Mike Booth, and Li-May Chew have led and delivered numerous strategic transformational programmes in banking, payments, data, technology, and Open Finance. They are recognised industry thought-leaders for delivering insights and sustained value creation for financial services firms across Asia Pacific, the US, and Europe.
EY exists to build a better working world, helping create long-term value for clients, people, and society and build trust in the capital markets. Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform, and operate.
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