An open approach to open banking
Open banking is changing the way we bank forever.
To grow open banking worldwide, governments and industries must have an open, collaborative attitude
Globally, the state of open banking is still very immature, but there is no denying its growth. The number of users worldwide is forecast by Statista to reach 132.2 million by 2024, a significant increase from the 24.4 million users in 2020.
Its progress is a key priority for governments and financial services organisations around the world, but obstacles still remain. Educating consumers about its benefits, persuading banks to move away from legacy software, and encouraging industry collaboration are just a few.
One vital way the industry can overcome these obstacles is to take an ‘open’ approach to open banking.
In the UK for instance, the industry should look beyond regulation to different approaches around the world, such as in Australia and Singapore. Otherwise, it may never reach its full potential and fall short of its desired goals.
An open approach
Since it was initiated in 2017 by the Competition and Markets Authority (CMA), the UK has encouraged the growth of open banking globally and has played a leading role in highlighting the significance of the approach to financial services.
In a recent report, the Joint Regulatory Oversight Committee (JROC) announced its plans to establish a long-term regulatory framework, which will play an essential role in helping open banking to realise its full potential in the country. The framework will set out the role of the Treasury and the respective roles that the FCA and Payments System Regulator (PSR) will have in providing oversight across the open banking ecosystem.
While the EU is also taking a regulatory approach, the UK risks limiting its role as a driver of progress without the access to the wider European population it once had before Brexit. And as the European market is predicted to be the largest open banking market by 2024, the continent as a whole would do well to collaborate to better understand customers’ needs, react to market demand, and expand further.
If the UK is serious about maintaining its position on a global stage, it must be careful that it doesn’t cut itself off. Instead, it should look to those larger banks headquartered locally – HSBC, NatWest, Lloyds, and Barclays, to name just a few – with influence and international exposure.
Being open to learning from global examples and listening to industry leaders will be important if the UK is able to incorporate successful practices into policy to encourage open banking.
The global stage
Globally, there are varying approaches that are encouraging growth. Outside of Europe, Hong Kong and Australia are two notable areas also taking a regulatory approach.
Australia’s Consumer Data Right Act (CDR), for instance, will allow consumers to share their data with authorised third parties. The key here is that the CDR is a data policy initiative and not a financial services one, meaning it can be applied to any sector – for example, energy and telecoms – expanding the possibilities for open banking to operate across other industries.
The CDR is also the first type of legislation to introduce ‘reciprocity’, enabling organisations to share real-time data and further supporting open banking due to the ease of sharing payment data.
Data portability, a similar concept in the EU, has failed to satisfy banks, with banks questioning the lack of reciprocity between banks and third parties. This is because if an individual customer is looking to take their business to a new financial services provider, their existing bank is obliged to hand over their data – and with it potentially the relationships the bank has built up over a long period of time. Yet, the same does not apply if a bank would like access to data held on a tech vendor platform – thereby giving a competitive advantage to those vendors.
Elsewhere, some countries are taking a different, market-driven approach. Singapore, for example, has witnessed high adoption among financial institutions. 90% of professionals consider open banking either a ‘must have’ or ‘important’ and a further 90% agree that it has also had a positive impact on the industry and made it more collaborative. This is despite no mandatory requirements.
While adoption has accelerated in APAC over the past few years, the space remains in the early stages of development. This is because many banks are just starting their digital transformation journeys as they look to move away from legacy core systems and closed or outdated architectures. This is where a global ecosystem will be key.
Promoting an ecosystem
No matter the approach to open banking, banks must form an ecosystem alongside fintechs, service providers, and aggregators. This will help banks when it comes to the speed they can introduce new products – and enable open banking.
An effective ecosystem strategy will make banks more relevant to their customers, providing an opportunity to drive better relationships and bigger wallet shares by providing the speed, scale, and differentiated products that make the most of the opportunity presented by the significant shift to digital banking. Coreless banking solutions can also support here, empowering banks to select the software vendors needed to obtain best-of-breed solutions for each application and/or service area without worrying too much about interoperability.
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.
This means banks can focus on incorporating the technology they need to enable open banking services and drive demand among customers – regardless of whether they are regulatory or market-driven – at a faster and more efficient pace.
Next level
To grow open banking worldwide, governments and industries must have an open, collaborative attitude. The very nature of open banking requires industry collaboration.
Now is the time to level up. For the world to unlock the ultimate outcome for open banking – a connected and collaborative service designed to get the best deal for both the customer and bank – a global and open attitude is the key.
