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As open banking evolves and extends to larger-scale open finance, it is rapidly emerging as a global phenomenon reshaping the financial ecosystem. Currently, nearly all of the countries in the world have some form of open banking initiative, each tailored to address local financial needs with differing regulations. Our new Open Banking Outlook takes a look at the benefits and challenges of open banking, recent key developments regarding open banking frameworks across the globe and where open banking is heading in the future.
In countries where open banking has been implemented, its transformative benefits are increasingly apparent, for customers and financial businesses. They include:
- Improved customer experience: empowering individuals with greater control over their personal information and enhancing portability and flexibility, open banking fosters a more personalised and seamless banking experience.
- New revenue streams: open banking creates ground for innovative business models, opening doors to previously untapped revenue opportunities within the financial ecosystem.
- Financial inclusion: widening access to a broader array of financial products and services, open banking plays a pivotal role in promoting financial inclusion and reducing disparities in access to banking services.
The successful evolution of open banking owes itself much to the collaborative efforts of stakeholders and the adaptability of regulators.
The challenges to open banking development
Embracing technological advancements and adhering to local considerations, while simultaneously mitigating risks and upholding market equilibrium, is required to thrive. Nonetheless, even if all of these achievements are accomplished, there are three broad challenges facing open banking development.
The first challenge centres on issues around the economics of open banking services. A pertinent question is whether open banking ought to be monetised, and if so, how and to what extent?
In markets lacking a centralised organising entity, the absence of a bridge between data providers (banks) and third parties poses a challenge in determining an acceptable pricing framework. In countries where there is a centralised organising entity, the current challenge is agreeing on what is a fair transaction price.
Secondly, security and trust issues between traditional banks and third parties present an ongoing challenge. Questions regarding liability in cases of fraud or data loss remain unresolved. Consumer protection from fraud and scams is receiving heightened attention in 2024, further emphasising the need for robust compliance efforts.
Finally, non-standardised APIs can create a significant challenge for third-party providers that need to adapt to each API. APIs are a critical part of open banking and are particularly important for enabling the secure exchange of information between different parties, so variations in the technology can cause headaches.
Find out more about the benefits and challenges of open banking, recent developments across the globe regarding open banking frameworks and where open banking is heading, in Vixio's new Open Banking Outlook.
