Open Banking involves the secure sharing of financial data and services with third parties through open APIs. This collaboration involves the exchange of data with third-party providers (TPP), fuelling innovation within the financial services industry. For customers, it means that they can decide to share their banking data with external parties to help aggregate data from multiple accounts in one place. Both established institutions and emerging players are leveraging this open approach to drive progress in an industry that has faced challenges in keeping pace with the digitalisation seen in other sectors.
How does open banking work around the world?
Europe’s PSD2 regulation and the UK’s Open Banking Standard, are often considered the beginning of Open Banking. Since then, the landscape has evolved, and Open Banking initiatives are now becoming commonplace globally, each one adapting to local markets, policy goals, and even extending into cross-industry approaches beyond finance.
Outside the European Union, Open Banking strategies can be broadly categorised into market-driven or regulatory-driven approaches. In countries like India, Japan, Singapore, and South Korea policymakers are implementing measures to encourage data sharing in banking. Singapore’s Monetary Authority (MAS) has published an API Playbook to facilitate data exchange between banks and FinTechs, while Japan’s Financial Services Agency (FSA) has mandated TPP authorisation, requiring banks to publish Open API policies. Similarly, Australia and Hong Kong have opted for a regulatory-driven approach. The Hong Kong Monetary Authority introduced an Open API Framework, outlining a phased implementation for banks. Australia’s Consumer Data Right Act (CDR) takes a unique stance, being a data policy initiative rather than solely a financial services one. The CDR extends beyond banking to sectors such as energy and telecommunications.
The United States has embraced a market-led approach, with major banks recognising the strategic importance of Open Banking. Despite a lack of significant government initiatives, banks are developing API-based offerings through partnerships with third parties.
What are the benefits of Open Banking?
- Aggregated insights in one place
Open Banking allows customers to consolidate their financial information from various accounts and institutions in one place, often through a single application or platform. This provides a comprehensive view of their financial health, making it easier to manage budgets, track spending, and plan for the future.
- Access to a wider range of financial services
With Open Banking, customers gain access to an expanded array of financial products and services. By capitalising on collaborations between financial institutions and fintech service providers, customers can discover solutions better aligned with their needs, including areas like budget management, investments, loans, and insurance.
- Access to additional insights about customers
With Open Banking, banks can access a broader set of customer data, beyond what is traditionally available through their own channels. This comprehensive view allows banks to better understand customer behaviour, preferences, and financial needs. This data-driven insight is useful for tailoring services and improving customer relationships.
- Opportunity to cross-sell / upsell based on behaviour across other accounts
Open Banking enables banks to analyse the transaction data of their customers across various accounts, providing insights into spending patterns and financial behaviour. This information can be leveraged to offer targeted and relevant financial products, leading to effective cross-selling and upselling opportunities. For example, a bank might suggest a more suitable credit card based on a customer’s spending habits.
- When implemented correctly banks can use Open Banking as a USP that helps to drive profitability.
When implemented correctly, Open Banking can become a USP for banks. Offering a user-friendly and comprehensive financial ecosystem that integrates third-party services can attract and retain customers. The ability to provide innovative solutions and a seamless banking experience may result in increased customer loyalty, attracting new customers, and ultimately driving profitability for the bank.
Open Banking initiatives are in varying stages of implementation across markets, and there is a need for both firms and regulators to do more to enhance consumer awareness and achieve scale. This is true even in markets like the UK, where Open Banking regulations are already fully established.
The Moneythor platform, through the processing of Open Banking data obtained with customer consent from various financial institutions, allows digital banks to craft customised experiences. These experiences offer customers a profound insight into their finances while providing financial institutions with an opportunity to enhance their marketing campaigns. As Open Banking gains widespread adoption, the Moneythor platform aims to empower consumers, enabling them to take control of their finances and make more informed decisions.