With the evolution from open banking to open finance around the world, it has been difficult to collect the data needed to track its progress and see the patterns evolving in different regions. Thanks to Excellence in Open Bankingthat the data has been compiled and analyzed in a new report, The Open Finance Index. The report sets a benchmark for Open Finance and presents a variety of perspectives and predictions about what lies ahead.
I was pleased to share my views in the report and discuss the critical elements that I believe will determine which players will thrive as Open Finance expands. Here is a summary of my opinion on the current situation.
Main current use cases for Open Finance
29% Personal finance management: account aggregation, basic information on expenses and budget tools
17% Income and Affordability Assessment: Credit Check and Decision Making
9% Account top-up payments: sweep money between accounts, including bank accounts, digital wallets, investment accounts, etc.
8% Ecommerce/A2A Payments: Integrated Payments at the Point of Need
Fintechs have set the stage
Fintechs have been the dominant players in this early stage of Open Finance development. There are many reasons for this:
- They are more agile than large companies and established institutions, making it easier for them to create and improve offerings in an agile way as they learn what works and what doesn’t.
- In some regions, they face less regulation than large financial institutions, giving them more freedom to experiment and think outside the box.
- They are generally less risk averse than traditional banks and other institutional players, so they are more willing to invest in something that is far from established.
- They are not bogged down by legacy infrastructure, which can make open API adoption and data sharing difficult.
Banks can become the center of attention
As Open Finance becomes more established and attracts a larger customer base, banks are becoming more comfortable with their potential role in the market and some are beginning to make their moves. We have seen large institutions like DBS in Asia, BBVA in Europe and Citigroup in North America invest more in Open Finance and play a bigger role in the ecosystem.
Banks have an opportunity to integrate into the growing ecosystem by embedding their services in applications run by large technology companies, industry players, fintechs, and other third-party providers. Collaboration will also play a key role. We have definitely seen a trend among established banks towards recognizing the value of fintechs and creating more partnerships with them.
commercially driven
To become major players, banks will need to grow beyond the Open Banking APIs that were their entry point into this rapidly evolving ecosystem. Future growth will be open to banks that invest in advanced data management and master the use of artificial intelligence and machine learning to optimize their use of data. Being able to connect and communicate was the first step; being able to add significant value is the way to go.
The most successful banks in the Open Finance ecosystem will be able to aggregate all of their customer data, as well as data from Open Banking and Open Data from other industries to offer highly personalized and meaningful solutions to their customers, exactly when they are looking for them. .
Competition can come from unexpected places
Most of the discussion about the future of Open Finance has revolved around the comparative positions of fintechs and banks, but there are other players that could change things for both.
First, big tech is likely to play some power plays as more open data becomes available. Players like Apple are already launching buy-now, pay-later solutions, digital wallets, and other products that were once the purview of the banking industry. Super apps are also in a strong position to become leaders in Open Finance.
Another trend we see emerging is the blurring of lines between industries. There is no longer a clear separation between big tech, financial institutions (traditional or digital first), telcos, and other service providers. As businesses move more and more online, customers worry less about going to a specialized provider for every transaction they need to make. If your telco offers microloans, why bother with the bank? If they can use a digital wallet to make purchases within their gaming system, why use a credit card? This borderless ecosystem offers great opportunities for banks to go beyond their traditional offerings, but also opens them up to new and perhaps unexpected competitors.
It’s time to build the future
After a cautious start, Open Finance appears poised for rapid growth, at least in markets where it is supported by the government or where market forces are pressuring providers to participate in the ecosystem. As we enter this acceleration phase, it is extremely valuable to have a measurable benchmark like The Open Finance Index to help us track progress and identify trends and barriers.
TO learn more about Open Finance, contact me. Learn more The Open Finance Index, read the full report.