What does the future of open banking look like?
According to a recent report by Polaris Market Research, open banking is expected to reach a valuation of $128.12 billion by 2030. Additionally, Finastra's “Financial
Fast forward to today, and open banking has become a staple in many regions. According to a 2021 report by the Financial Brand, more than 2,500 European firms had registered as third-party providers under PSD2, and the global open banking market was expected to reach $43.15 billion by 2026, growing at a CAGR of 24.4%.
The Open Banking Market is anticipated to witness substantial expansion, reaching a projected value of USD 203.8 billion by 2033, with a remarkable compound annual growth rate (CAGR) of 23.3% from 2024 to 2033.
While Open Banking, including the use of the Open Banking API, is frequently perceived by traditional banks as a significant threat, the reality is that a vast array of opportunities awaits exploration alongside the clarity provided by regulations.
Human-less Banking
Through AI and robotics, the banks of the future will be able to operate without any human assistance. Searches for “banking automation” have grown by 183% in the last 12 months. 65% of banking executives believe that zero-human banking will become a reality in the future.
However, the success of Open Banking isn't uniform. Its impact varies depending on regulatory support, technological infrastructure, and consumer awareness in different regions. Moreover, while Open Banking has seen considerable achievements in its relatively short life, it's still in its early phases.
Customers have limited options for sharing their data with third parties, and data access is often restricted to the bank's closed ecosystem of service providers, limiting the variety of options available and stifling competition and innovation.
With no way to control how the fintech uses or stores customer data, sensitive financial information is constantly at risk of being compromised. With open banking, users no longer need to provide their login information to fintechs. Instead, financial institutions can relay data to fintechs via a secure API.
Open banking can help small businesses by providing access to financial services and data that they may not have had access to previously. This can include things like payment processing, financial analysis, and other services that are typically only available to larger corporations.
Open banking primarily centers around enabling secure data sharing and granting third-party access to customer accounts, aiming to enhance customer experience, launch new digital services, and increase revenue.
Is open banking a failure?
In the UK, open banking has seen only limited success. A new report calls for a change in the country's approach to the technology. Sam Friend reports. A NatWest-commissioned report has called into question the UK's approach to open banking amid concern that the industry is failing to make the most of the technology.
But if you'd rather not allow third party applications to have direct access to your financial data, then that's totally up to you. If you do sign up for an application which uses Open Banking but change your mind, you can withdraw your permission at any time, either via your bank or the app itself.
- Bank of Scotland (Personal and business accounts)
- Barclays (Personal and business accounts)
- Danske Bank.
- First Direct.
- Halifax.
- HSBC (Personal and business accounts)
- Lloyds (Personal, business and commercial accounts)
- Mettle.
1. The rise of gen AI. Banks are likely to benefit more than other industries—our analysis indicates productivity could rise by 20–30% and revenue by 6%. Banks will need to not only utilize cloud and data effectively, but also to rethink work and talent.
This framework is the digital-first platform, supported by four pillars – omni-channel banking, smart banking, modular banking, and open banking. Each of these four pillars is fundamental to success in the banking industry of the future.
Moving into 2024, banks are also facing emergent elevated rates and credit issues. Banks are dealing with higher interest rates, increasing deposit costs, and slower lending due to interest rate fears squeezing margins. Interest-rate volatility in the past few years is also increasing focus on asset-liability risks.
OBL estimates that 11-12% of digitally-enabled consumers and small businesses used open banking during June 2022. This figure has increased from 10-11% in December 2022. A record 9.7m payments were made in June 2023, an increase of 88% on the same month in 2022.
Companies that work within open banking infrastructures make their money in various ways. For example, they may charge a subscription fee for merchants to use account information services via apps.
While open banking in practice has only been around for a short while, roots for the concept can be traced back to 1980 when Deutsche Bundespost (German Federal Post Office) conducted an experiment.
Conclusion. The rising fintech concept of "open banking" has the potential to alter our approach to financial data. By enabling third-party financial services companies access to customers' bank accounts, OB allows customers greater say over their financial data and sparks new forms of innovation.
What are the pros and cons of Open Banking?
It offers many advantages, such as increased convenience, access to a diverse range of financial services, and a network of synergetic third-party applications. But it also has some disadvantages, being the security risks of sharing data the most important drawback.
Open banking relies on secure data-sharing practices, such as using APIs and encryption, to ensure that customer data is protected. These practices are often more advanced and secure than the security measures used in traditional banking.
In parallel, the threats posed by FinTechs have the ability to disrupt four categories of incumbents' business – market share, margins, information security/privacy and customer churn – at higher rates when compared to other financial sectors.
Open banking fosters collaboration between FinTechs and traditional financial institutions. This creates an open finance ecosystem, where FinTechs can offer innovative services by integrating with existing financial infrastructure.
During the COVID-19 pandemic, the need for contactless transactions accelerated the adoption of fintech solutions. It marked a pivotal point where the banking industry had to embrace technological advancements rapidly to meet the changing demands of consumers and ensure operational continuity.
