APAC and Oceania are the next most prominent regions for Open Banking development after Europe. For instance, in Australia, the introduction of the Consumer Data Right in 2017 expanded the concept beyond banking, creating an economy-wide data-sharing regime. In 2020, New Zealand also started working towards CDR introduction. Sri Lanka launched the development of Open Banking Framework in 2020. While countries such as Singapore, Indonesia, Japan are underway to enrol most of their banks to open their APIs to fintechs to foster open ecosystem and collaboration.
Meanwhile, countries like the UK, Poland, Germany have embraced interbank standard Open API sets to encourage collaboration and interoperability. Portugal and Italy face challenges due to the lack of a common API standard, resulting in fragmented integrations.
Privacy concerns. Opening the data is beneficial but requires careful planning in terms of security and access. Maintaining customer trust is crucial to the success of Open Banking initiatives. Based on the Financial Conduct Authority Limited UK recommendations towards Open Banking promotion, implementation of effective financial crime prevention tools for TPPs and ASPSPs will be one of the main agenda milestones for Q1 2024.
Fear of Missing out (FOMO). Most of the FI players are reluctant to share their own data, earned with blood and sweat, with aggressive fintechs. Indeed, Open Banking intensifies competition. Therefore, banks vote for customised ‘one-to-one’ integrations, limiting their usability to specific products or services. If fintech companies are able to offer more innovative and personalised financial products and services using Open Banking APIs, traditional financial institutions could potentially be sidelined, or find themselves in the role of a custodian.
Though, in the realm of Open Banking the convergence of technology, frameworks and provision of modern API standards can help to mitigate the obstacles, boosting the security of operations and increasing the speed of innovations.
On the other hand, introduction of Open Banking brings obvious benefits to market players:
New UX. Banks and fintechs can provide personalised and customer-centric financial services. Access to customer data enables the development of targeted offerings, leading to improved user experiences, satisfaction and loyalty.
Expansion through collaboration. According to Financial Conduct Authority Limited UK, there are over 7 million active SMEs of Open Banking-powered apps with over 68mln Open Banking payments done in 2022, which is almost double the amount comparatively to 2021. Through partnerships with third-party providers, they can tap into new customer segments and offer seamless financial solutions through various applications and platforms, including B2B.
Lowering transaction fees for SMEs. Open Banking allows account-to-account payments, which enable consumers or businesses to make purchases or payments directly from their bank accounts, which reduces the transaction fees, eliminating card processing and operational costs.
In the current realm of Open Banking, there are few prominent strategy models that have emerged to address the challenges and capitalise on the opportunities, according to the new Open Banking report of BPC and Payments Cards Mobile 2023.
Many-to-Many Networks. This model involves building a collaborative network of modern and secure APIs connecting banks, TPPs, FIs. By sharing open APIs, banks can offer a range of digital services within the applications. TPPs can leverage these APIs to build innovative applications on top of existing banking infrastructure, expanding the reach of traditional brick-and-mortar branches and delivering tailored services to customers.
Many-to-One Networks. Another approach involves the creation of a centralised platform with a standardised set of open APIs. Central Banks or Interbanking networks take the lead in developing these platforms, which are accessible to all banks and third parties in the market, enabling real-time, low-risk fund transfers and facilitating services like Account-to-account, Request-to-Pay payments.
More countries emerge as fintech hubs and technology attractors, meaning more the concept of using open APIs will persist. Saudi Arabia and the UAE have seen dramatic growth in the rise of fintechs and payment powerhouses with the KSA government issuing the Saudi Open Banking Framework in 2022 to open the door to the concept. In the same year, Dubai also announced a licensing framework for TPPs.
As stated in a BPC Open Banking report 2023 to fully realise the potential of Open Banking, it is essential to address the challenges associated with managing diverse Open API sets.
Irfan has over two decades of rich experience in Payment Systems domain and Digital Financial solutions. He has been involved in both architectural design as well as project management and implementation of National Payment Switches, Payment Gateways, Internet Banking solutions and Mobile Financial Solutions. Irfan has imparted domain level consultancy to over 40 banks worldwide, in devising digital financial solutions through his BPC career. He currently leads Middle East and Africa Presales division in BPC.
With challenges Open Banking in mind, BPC strives to provide solutions that address these hurdles and foster the development of open ecosystems. We aim to empower financial institutions and stakeholders, enabling them to navigate the intricacies of Open Banking, drive collaboration, and unlock the full potential of open ecosystems. Founded in 1996, BPC delivers solutions which fit with today’s consumer lifestyle when banking, shopping, or moving in both urban and rural areas, bridging real life and the digital world. With 350 customers across 100 countries, BPC collaborates with all ecosystem players ranging from tier one banks to neobanks, Payment Service Providers (PSPs) to large processors, ecommerce giants to startup merchants, and government bodies to local hail riding companies.
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