Open Banking, which started as a regulatory initiative in Europe back in 2017, is a global phenomenon today with all key international jurisdictions having initiatives in place. In the last 18 months, the scope has widened in Brazil and the UK with the emergence of Open Finance, where participants can use diverse and rich datasets to launch the next wave of financial services propositions for consumers, businesses, and society.
Open Finance extends the scope of Open Banking and uses additional datasets such as those relating to credit, mortgages, savings, pensions, tax, insurance, and investments. This trend – consumers and businesses sharing financial data in exchange for services provided by third parties – is a continuation of the Open Banking journey. The ultimate destination is Open Data, where customers share select data across all aspects of their lives to get better products and services that address their daily life moments.
The confluence of disruptive forces over the past 24 months has put immense pressure on incumbent players to bring meaningful innovation into their businesses and accelerate their transformation journeys. These disruptions are driven, in large part, by the rise of the broader digital economy and the challenges posed by the pandemic.
Non-financial-services providers, particularly big technology companies, are getting into financial services, and we are seeing them collaborating with banks in the US and Europe and competing with incumbents in Asia. The industry’s traditional value chains and markets are becoming fragmented, products/services are being componentised, and new players are emerging. This is putting further pressure on incumbents and challengers to innovate.
As Open Banking evolves into Open Finance, and ultimately into Open Data, a competitive and collaborative ecosystem will emerge involving banks, tech giants, other financial services industry players, fintechs, and non-banks. This will further accelerate innovation, which in turn will amplify the disruption of the industry landscape.
The clock is ticking, and banks and non-banks from all around the world are looking to innovate through key use cases as they build their future roadmaps:
Embedded Finance: Financial services offerings, such as insurance, mortgages, other loans, and cards, are integrated into the digital journeys of third-party platforms that support many of the important daily needs of consumers and businesses.
Buy Now, Pay Later: BNPL is a flexible credit option embedded through APIs at the point-of-sale for both ecommerce and physical payment experiences.
Pensions Dashboards: These allow consumers to see all their pension accounts (state, employer, personal) in one aggregated view to get an integrated perspective of their life savings and retirement.
Treasury and Corporate Banking: Treasury APIs facilitate a shift from batch to real-time processing, thus offering real-time money movement, liquidity management, and cash position views.
Accounting Automation: Direct access to bank accounts from accounting packages allows small and medium-sized business to synchronise their bank account with their general ledger in real time, reducing their administrative overheads.
Trade and Asset Finance: This provides working capital or asset leases for customers through a streamlined, integrated, and automated API solution embedded into business applications.
Open Insurance: Embedded insurance sales and servicing propositions are made available via APIs and integrated into the digital journeys of brokers or third-party platforms.
Open Energy: This enables users to search for, discover, access, and securely share energy data across a set of retail and wholesale use cases.
Open Finance and Open Data will be the new normal in the industry and will result in the creation of an ecosystem, involving banks, tech giants, fintechs, and non-banks, that is simultaneously competitive and collaborative. We are at the start of a journey into an exciting future which I believe will be characterised by the following:
Open Finance and Open Data will be the new normal: Propositions powered by these two trends will be deeply embedded and almost invisible in day-to-day customer journeys.
There will be a proliferation of super-apps: Industry boundaries will blur as super-apps powered by Open Models and partnerships offer an array of rebundled propositions provided by innovators.
Marketplaces will take centre stage: They will not only become more prominent but will be built around trust. A marketplace can be set up by an incumbent and powered by fintechs/startups.
The emphasis will be on data more than APIs: The story will no longer be only about APIs, as they will become synonymous with data management. And their integration with machine learning, AI, and linkages into the Internet of Things (IoT) will create differentiation and adoption.
Access will come through the digital ID: Digital ID providers will allow customers to easily manage the use of their data stored across this complex ecosystem.
Market infrastructure providers will fuel growth: These players will provide common services to drive the activation and growth of ecosystems at both the local and international levels, as well as the adoption of Open Finance/Open Data by customers and businesses.
Companies need to identify the opportunities, develop their strategy, start to build the required capabilities, and partner with the right allies. The key impacts will be observed across technology, customer journeys, partnerships and alliances, as well as competition. In summary:
Develop a strategy that aligns with the long-term vision and supports the new business and operating models.
Create the next set of capabilities to succeed in the world of Open Banking. Improve agility to defend against increasingly disruptive and innovative competitors.
Build technology to help become an ecosystem partner of choice, and then build strong partnerships.
Create new customer-centric offerings and experiences that capitalise on the potential of Open Banking. Digitise existing customer journeys.
Prepare to transform perpetually – things are not going to settle down.
This article was first published in the Open Banking and Open Finance Report 2022. Click here to download the report.
About Amit Mallick
Amit has 20 years of consulting and technology experience in financial services. He currently leads Accenture’s Open Banking/Open API business globally and has strong subject matter expertise in Open Banking, PSD2 and the associated API economy, and has published multiple white papers and thought leadership articles on these topics.
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