Almost half of 300 global banking executives who responded to a recent survey plan to transform business models into digital ecosystems.
The adoption of open banking services at incumbent banks around the world is set to see a significant upswing, according to a recent report written by the Economist Intelligence Unit (EIU) and published by banking software company Temenos.
The EIU conducted a survey of more than 300 global banking executives. It found that nearly half (45%) plan to transform their business models into digital ecosystems, which in addition to offering third-party products may lead to incumbents partnering with open banking players. Strategies in the pipeline for open banking hub initiatives were mentioned by 29% of respondents, rising to 32% in Asia and 36% in Africa and the Middle East.
Open banking enables third-party financial service providers to securely access bank customers’ financial information to develop new applications and services. It could offer the opportunity for incumbents to partner with fintechs to create products that are more tailored to their customers, a top priority for nearly 32% of respondents in the EIU survey.
Opening up banking isn’t enough unless you can prove to your customer base the certainty of how their data is going to be treated
The report found that regulation has been the main driver for adoption in Europe and several Asian and Latin American countries. In others, such as China, a low-level regulatory environment, coupled with low credit card penetration, has seen fintechs and ecommerce giants bypass the banking system to create their own open banking services.
In the EU, the second Payment Services Directive requires banks to allow access to licensed third parties via application programme interfaces (APIs). While this has shown progress, the report states that a lack of guidance and standardisation on the technical side as factors means many European banks are struggling with its implementation a year after the regulatory deadline.
Mirroring a UK lead
The UK is viewed as a leader in open banking, launching its initiative three years ago. As of February 2021, more than three million UK consumers and businesses use open banking-enabled products. The report credits the success of open banking in the UK to strict regulatory deadlines and the founding of the Open Banking Implementation Entity (OBIE), a centralised programme and technology platform funded by the country’s nine largest banks.
Other countries are mirroring the UK’s consolidated approach. The report highlights Hong Kong’s Apix API platform, which is supported by a consortium of local banks, while Scandinavia’s Nordic API provides a standardised platform that any bank and licensed third party can join.
The Covid-19 pandemic has also helped accelerate the uptake of open banking, as lockdowns and the closure of bank branches force customers to manage their finances via digital channels. The UK’s OBIE platform reported that its user base doubled to two million between April and September 2020.
Aside from the technical and regulatory challenges, the report emphasises that customer confidence remains vital for the widespread adoption of open banking.
John Broxis, managing director, the Open Banking Europe initiative, states in the report: “Opening up banking isn’t enough unless you can prove to your customer base the certainty of how their data is going to be treated, certainty about refund periods and reconciliation information, or certainty about what happens if you do something wrong.”
