Joy Macknight

Banks are moving beyond open banking to open finance, which most believe is already having a positive impact and making the industry more collaborative.

Banks’ enthusiasm for open finance, which expands the scope of open banking to allow third parties to access a broader range of customer data from areas such as investments, pensions, mortgages and insurance, is increasing.

According to a recent survey by financial software firm Finastra, almost half (48%) of the more than 750 banking professionals surveyed regard open finance as a “must have”, an increase of 10% since 2021. Interestingly, 85% agree it’s already having a positive impact and making the industry more collaborative.

According to the ‘Financial Services: State of the Nation Survey 2022’, most territories have seen a marked shift in attitudes. Aside from Hong Kong and Singapore, all regions saw a year-on-year increase of at least 10 percentage points in the proportion of institutions regarding open finance as a ‘must have’. The increase is particularly noticeable in the UAE (up from 50% in 2021 to 71% this year), the UK (up from 33% to 47%) and the US (up from 45% to 56%).

The most widely identified benefit of open finance this year is that it gives consumers access to a greater range of financial services.

According to the report: “Unsurprisingly, digital and retail banking was identified as the category where open banking and finance is expected to have the greatest impact.”

Another industry trend identified in the survey is banking-as-a-service (BaaS) and embedded finance. More than eight in 10 (83%) of institutions surveyed say that they are already expected/demanded by customers. Agreement levels are highest in the UAE (95%), followed by the UK (88%), US (86%) and Singapore (85%).

More than a third (35%) of institutions have improved or deployed BaaS in the past year, through an open application programming interface (API)-enabled platform, while 33% have improved or deployed embedded finance within another (typically non-banking) customer journey.

BaaS has been deployed or improved in the last 12 months by almost half of institutions surveyed in the US (46%), as well as UAE (41%), Singapore (38%) and the UK (37%). The story is similar for embedded finance, with around 40% in Singapore and the UAE, and 35% in the US (35%) having improved or deployed the provision of their services in the past 12 months.

According to the report: “The benefits which are most widely recognised by institutions vary by market. For those in the US and France, BaaS and embedded finance are seen as a means to grow, with this notion garnering a higher level of agreement than any of the other surveyed benefits for these territories.

“For the UK, customer demand is key – institutions agree that customers expect and demand these services to a greater extent than they agree with any other benefit.”

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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