The Future of Finance
By Hans Tesselaar, Executive Director of BIAN
Open Banking has been a significant phenomenon within the global financial services sector for the past few years, with our research showing that 72% of financial institutions are benefiting from the initiative. With an additional 22% of organisations investigating the impact it will have on their business.
Open Banking has the power to revolutionise the way we manage our financial wellbeing, improves customer experience and increases competitiveness. Despite its revolutionary status, however, Open Banking still falls short when it comes to managing our entire cash pot, with the initiative only being applied to payment accounts. This is opposed to the likes of savings, mortgages, loans and investments.
This is why the industry has started to coin the phrase ‘Open Finance. This, according to KPMG is the term used to describe the “extension of Open Banking data-sharing principles to enable third party providers to access customers’ data across a broader range of financial sectors and products”.
If banks want to future-proof their businesses for the customer of tomorrow, they must look to Open Finance as a way of doing this.
Evolution of Open Banking
The Open Banking model has initiated an upgrade to outdated infrastructures and processes within financial services organisations. In order to implement this approach, financial services businesses need to either replace or upend existing systems for greater digital agility. In this way, Open Banking has been an integral part of digital transformation within banking by providing digital flexibility.
Traditionally, banking has been considered archaic, and when it comes to digital advancements, the sector often gets left behind. However, the speed in which digital services has grown within the industry over recent years has been extraordinary, though we cannot ignore COVID-19’s impact here. There had been much speculation over the years around whether Open Banking would be the catalyst for digitisation within financial services, then in came the pandemic which has instead led to the accelerated adoption that we see today. With our research finding that over half of financial services professionals believe that COVID-19 has encouraged its organisation to prioritise digital transformation initiatives.
Consumers now have access to major benefits as a result of the accelerated development of Open Banking. The ability to access account information services means that customers can track and utilise information about their accounts or grant access to third parties, for example, mortgage service and loan services, across various accounts from one place. In 2015, long before the idea was being marketed to consumers, 40% reported that they would be happy to share their personal data in order to receive personalised financial management services. Convenience is King and Open Banking supports an environment that streamlines the customer finance experience, simplifying the personal finance for many.
The decrease in popularity of traditional banks correlates to the rise in Open Banking as consumers change their general approach to banking – from legacy to digital. Research from Statista shows that in 2020, the share of people using internet banking (a segment of Open Banking) is 76%, an increase of 21% over the past five years, an upward trajectory of 3-9% every year.
The banking industry faces many obstacles as it struggles to keep up with the changing needs of its customers. Open Banking was perhaps a first step towards addressing some of the issues apparent in the traditional banking industry but operating financial systems in a digital environment comes with its own challenges. Despite this, Open Finance is hot on the heels of Open Banking, opening the door for high street banks to provide yet another level of growth.
Making the transition into Open Finance
Open Finance is like the big brother of Open Banking, leveraging its services but offering a wider variety of sectors and products. It will allow consumers to make more comprehensive financial decisions, based on their entire financial portfolio, rather than just their payments accounts. In addition to this, it could potentially open up automated switching and renewals so that there’ll be less friction if customers want to compare different financial products.
Although the underlying technology is relatively new, the potential benefits signify the next generation of financial services and the industry is certainly interested. Our research found that over half (53%) of professionals believe there is a demand for Open Finance in their country, based on the success of open banking.
A good example of some early movers is the merger between ING Bank and Dutch Postbank which, used Open Finance to deliver the four data migrations that were required to carry out the process. Not only did this make operations cheaper and faster, but it is also the catalyst for the increased use of Open Payments by organisations and consumers.
To make the most out of the opportunity presented by Open Finance, banks, technology providers, FinTech players, academics and consultants must collaborate to define a revolutionary banking technology framework that standardises and simplifies the overall banking architecture. Only through greater collaboration, are we are able to future proof the industry, weather any storm that comes our way, but we need to control the costs.
Don’t get left behind
Overall, Open Banking has demonstrated numerous business benefits including increased efficiency, enhanced customer insights, reduced costs, better retention and the opportunity to access new markets. Its benefits and growth can’t be ignored with adoption surpassing the one million mark in the UK alone. Open Finance takes this approach one step further with the opportunity for greater possibilities. Those who are collaborating and embrace this new personal finance management model, with the right technology in place to support a seamless service, will be front in line to realise the benefits. Try not to be the ones who get left behind.
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