Open Banking: A Growth Strategy for the Banking Industry

 

Many analysts believe that when banks and credit unions discover ways to highly customise broad customer connections and expand their products, open banking and open finance will fundamentally alter how they generate money.

FREMONT, CA : While the speed and paths followed will differ depending on the market, open banking and its potent offshoot, open finance loom as unavoidable and fundamental change agents for the banking industry. For instance, open banking was mandated by the European government, whereas market forces in the United States primarily drive it. The movement's long-term importance is still developing.

According to Jacob Morgan, Principal Analyst at Forrester states, Open finance signals a turning point for collaboration in financial services. It gives the potential to consolidate real-time insight across many parts, decrease friction through automation, and direct clients to contextualised, personalised results. According to Helen Child, founder of Open Banking Excellence, a community of open banking practitioners, there were 26.6 million open banking payments in 2021, a 500 per cent increase in only one year.

There is no logical reason they can't increase this by zero and make it 260 million. In the prologue to a report on open banking and open finance state, Child predicts that the addressable market created by open banking would be worth USD 416 billion over the next three years.    

The source of Child's 2021 number can provide some urgency to banking firms that are still on the fence. It comes from Accenture's report predicting an impending wave of change. The Accenture research cautions that the notion that waiting things out is the safest course of action can be risky. Banks that haven't yet thought about their role in the open data economy risk losing out to more nimble competitors. After all, a blurring of the barriers between industries is one of the key characteristics of the open data economy.     

On many levels, financial ecosystems are in demand. According to an article on open banking from Amazon Web Services, this tendency has accelerated across the board in financial services. 

Although open banking served as a spark for the banks' journey, many have accepted the expansion of their business models and the acquisition of new clients, also known as open finance, according to Amazon. 

Evolving From Open Banking to Open Finance: Understanding this quickly evolving combination of standard and nontraditional financial banking services can occasionally be hampered by terminology. Open banking is the structured and safe consumer-permissioned sharing of data across financial service providers, emphasising that this tactic is only applicable to retail and investment banking.     

Open banking is defined as the capacity to access and act on financial data to generate personalised experiences, accelerate innovation, and encourage industry collaboration.      While open banking is the next step beyond open finance, providing access and sharing of consumer data to even more financial goods and services, not just banking, MX claims, open finance is the next step beyond open banking. This covers mortgages, credit cards, investments, and pensions. Additionally, it makes it possible to integrate financial data with sectors other than finance, like government and healthcare.     

Open finance is establishing a strong foundation. Finastra spoke with executives from financial institutions in seven different nations. 85 per cent of professionals concur that open finance is already improving industry collaboration and having a beneficial impact. Eight out of ten people believe that the industry is open to collaboration, and 87 per cent think this is an improvement from five years ago.