What Does the Future Hold for Open Banking?

By Hans Tesselaar, Executive Director, BIAN

The financial services sector is beginning to adopt Open Banking more widely, but there are still obstacles to overcome. While there is overt awareness around Open Banking and its benefits within the financial services industry, the challenges created by a lack of education are evident.

The services offered by banks today are focused on those with multiple bank accounts, and there is still some reluctance to share sensitive financial data. However, with the increasing intensity of consumers embracing digital into their everyday lives, there is a renewed focus on how banks can meet the needs of the digital consumer.

As we look to the future of Open Banking, these are the top three things the financial services industry needs to be considering to accelerate its adoption.

• Supporting customers’ adoption:

The number of Open Banking users in Europe was 18.8 million in 2021, and while this number is expected to reach 63.8 million in 2024, there is more potential for growth in this area. With online banking becoming increasingly popular, as we move further into a cashless society, Open Banking is a natural next step for those juggling multiple bank accounts.

Open Banking is regulatory mandated in places such as the UK and EU. Still, regulators have continued to make assumptions about the customer’s needs and not reacting to market demand. This approach has meant that awareness among customers is sometimes limited.

This is compared to countries like the US, Canada and India, where Open Banking is market-driven. We have seen in these countries that the Open Banking initiatives have contributed to overcoming significant hurdles when it comes to digital banking.

In India, for instance, the industry successfully implemented the Unified Payment Interface system in 2016. The mobile platform allows consumers to connect their bank accounts to registered mobile wallets, which enable digital payments and transactions.

According to a report by Credit Suisse, India’s UPI system has been a significant driver of accelerated payment digitalisation in India. The UPI system has grown ten times in the last five years, constituting almost 30% of retail transactions.

For Open Banking to be successful, the industry must consider how initiatives, whether driven by regulation or the market, will benefit the financial wellbeing of the consumer. Failing to take this approach only means that Open Banking will fail to meet its full potential.

2) Utilising third parties:

Open Banking involves consolidating different accounts across various banks and operating systems. Third parties are crucial in providing the technology to support these processes, enhance the user experience and make it as easy as possible for customers to transfer money or make direct payments. However, for this to work seamlessly, banks must overcome their hesitancies when it comes to controlling the whole chain.

Third parties can deliver a wealth of features that will help banks remain competitive and offer the best solutions for their customers. These features could include offering the technology to make splitting payments between friends and family members a much smoother process for customers.

Standardisation is also crucial here. For example, ‘Coreless Banking’ technology empowers banks to select the software vendors needed to obtain best-of-breed for each application – and/or service – area without worrying about interoperability and being constrained to those service providers that operate within their language.

By translating each proprietary message into one standard message model, communication between financial services is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data. Banks can then utilise and combine third-party solutions to deliver the best Open Banking services for their customers.

3) Encouraging collaboration:

The next level of Open Banking is open finance, where banks move away from connecting just accounts and payments to mortgages, car loans and even insurance. Again, the potential for enhancing the experience customers have with their banks is evident, enabling the customer to handle all of their finances readily and efficiently in one place.

What’s exciting is that Open Banking is not just confined to the financial services industry. There is potential to extend this technology and concept across other sectors, further enhancing the benefits to customers. Take travel, for example, where banks can offer customers discounts on travel, better exchange rates and keep track of credit cards through Open Banking technology.

By encouraging and supporting other industries to adopt Open Banking, a world of convenience and interoperability is opened for the customer. For example, homepages and websites of banks can be a hub for recommendations, where customers can find services that will seamlessly connect with their banking app.

Looking ahead

Banks must focus on meeting customer needs in order to encourage mass adoption of Open Banking. Standardisation and implementing solutions that increase interoperability and support Open Banking will support this. Coreless Banking principles for example, can help banks unlock the opportunity to enhance the customer experience and continue to enhance benefits.

It’s an exciting time for the industry, which has forced financial services institutions to look outside the four walls of their organisation and broaden their view. Looking ahead to the future, we must continue to encourage development, deploy solutions at a faster pace and increase this maturation of banking services.