With Open Banking evolving into Open Finance around the world, it has been difficult to gather the necessary data to track its progress and see the patterns evolving in different regions. Thanks to Open Banking Excellence, that data has been gathered and analyzed in a new report, The Open Finance Index. The report sets a benchmark for Open Finance and features a range of perspectives and predictions on what lies ahead.
I was happy 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 take on the current situation.
Top current use cases for Open Finance
29% Personal finance management: account aggregation, basic spending insights and budgeting tools
17% Income & affordability assessment: credit checking and decisioning
9% Account top-up payments: Sweeping money between accounts including bank accounts, digital wallets, investment accounts, etc.
8% Ecommerce / A2A payments: Embedded payments at 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 nimble than large, established companies and institutions, which makes 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, which gives them more freedom to experiment and think outside the box.
- They are usually 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 it difficult to adopt open APIs and share data.
Banks can step into the spotlight
As Open Finance becomes more established and attracts a larger customer base, banks are feeling more comfortable about their potential role in the market, and some are beginning to make their moves. We’ve seen large institutions like DBS in Asia, BBVA in Europe and Citigroup in North America invest more in Open Finance and play a larger role in the ecosystem.
Banks have an opportunity to integrate into the growing ecosystem by embedding their services in apps run by big tech companies, cross industry players, fintechs and other third-party providers. Collaboration will also play a key role. We have definitely seen a trend among incumbent banks toward recognizing the value of fintechs and building more partnerships with them.
“As we move from Open Banking to Open Finance and Open Data, we are seeing a movement from a regulatory-driven environment to a commercially-driven and opportunity-driven environment.”
– Michael Abbott, Accenture Senior Managing Director and Global Banking Lead
To become significant 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 forward.
The most successful banks in the Open Finance ecosystem will be able to aggregate all their customers’ data as well as Open Banking data and Open Data from across other industries to offer highly personalized and meaningful solutions to their customers, exactly when they are looking for them.
Competition may 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 shake things up for both of these.
First, big tech is likely to make some power plays as more Open Data becomes available. Already, players like Apple are 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 business moves increasingly online, customers are becoming less concerned about going to a specialist provider for each transaction they need to undertake. If their telco is offering micro-loans, 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 big opportunities for banks to move 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 beginning, Open Finance appears ready to grow rapidly, at least in markets where it is supported by government or where market forces are pushing providers to participate in the ecosystem. As we enter this acceleration phase, it’s extremely valuable to have a measurable benchmark like The Open Finance Index to help us track progress and identify trends and barriers.