By Domagoj Rozic, Co-Founder of Minka

Traditionally, financial institutions have been responsible for obtaining and processing details on what consumers spend, save and borrow. Today, some of that data is being shared with third parties in the industry, leading to the introduction of open infrastructures. This new wave of innovation is driven by a combination of government regulations and market forces, allowing financial and non-financial entities to access consumer data to offer personalised products or services.

In fact, research from Accenture demonstrates that 76% of global banks expect customer adoption and open banking to increase by at least 50% in the next three to five years. It’s clear that businesses in this space need to offer faster and tailored support to meet the changing needs of digitally-savvy consumers. Open payment infrastructures enable them to do this, by providing a comprehensive and in-depth understanding of a customer’s financial health and what they need in order to thrive in the long term.

Unlocking the benefits

Open banking has created an arena for digital transformation, opening up new opportunities for next-generation financial experiences. From financial management and account opening to lending and payments, new technologies are being driven by increased demand for fast and simple digital financial services. As a result, the simplicity and expanded opportunities for connectivity of open banking services have drastically changed customers’ expectations and provided them with a choice in how they pay and get paid.

Whilst some countries around the globe have taken a more cautious approach when it comes to adopting open banking, regions like Latin America have proven that there are huge benefits to be gained from extending data sharing and improving the digital network to collaborate with other institutions. This includes creating unique propositions or partnerships with complementary financial third parties to win new business and retain existing customers. What’s more, in the U.K., open banking payments are growing by 365% per quarter and 80% of consumers in the U.S are already connecting their bank accounts to technology applications.

Open finance infrastructures enhance existing capabilities for financial institutions, such as increased efficiency for regulatory reporting, accelerated shift to cashless, increased financial inclusion and faster response to market events or crises. But, it also creates new opportunities for banks. They are able to develop advanced revenue streams, access historical data that was not previously available, forge new pathways for collaboration and utilise data to proactively respond to changing market or consumer demands.

Considering the implications and risks

With open infrastructures, banks and clearinghouses are able to streamline services by linking to each other easily and storing balances in the cloud using API technology for peer-to-peer real-time payment. This demonstrates that data sharing in open finance will fuel opportunities for agile businesses to develop models that will shake up traditional financial services. But open banking does not come without its risks. The ecosystem requires various stakeholders such as data providers, third-party providers, regulators and government agencies to collaborate and ensure they can provide the highest quality customer experience.

Relevant parties also need to consider the risks associated with data loss, identity theft, data protection violations and money laundering. As the bank’s operations are fully digital and managed completely over the web, they need to have sufficient security measures in place to reduce the chances of fraudulent transactions or activities. Furthermore, government agencies and financial regulators are required to oversee open banking standards and compliance, which means financial institutions need to ensure that their new infrastructures are complying with GDPR and PSD2 guidelines.

Driving long-term value

Taking these risks into account, it’s evident that trust is a critical element when establishing a successful open banking ecosystem. While consumer adoption continues to rise across the globe, it’s important to remember that platforms need to be built on principles that drive a better customer experience, as offering new and differentiated products or services is vital to remain competitive in today’s fast-paced digital marketplace.

The foundation of any successful service is secure, consented access and relevant data. Ultimately, as open banking infrastructures continue to be developed and adopted globally, consumer data will help fintech companies and financial institutions to better gather feedback, create innovative solutions, scale faster and establish meaningful experiences.

Now is the time for financial leaders to recognise the opportunities available from open banking. Whilst various countries around the world are at different stages of adoption both from a bank and consumer perspective, the wave of technological innovation is expected to further enhance the capabilities of open banking and provide massive benefits to businesses and customers in the financial sector.