Open banking is a trend driven by regulation, the pace of innovation in financial technology and consumer
demand for more control over how their data is used. Open-banking regulations are disrupting the conventional
way of doing business for traditional financial institutions by forcing them to open access to their customer data to
third parties via APIs. Open banking is one of the biggest threats traditional banks face, but interestingly, it is also
one of their biggest opportunities. Many nimble and innovative fintech companies with access to customer data
are enabling new and innovative products to offer more choice to the consumer.
Regulatory
In 2015, the European Union mandated open-banking APIs under its PSD2 and GDPR to govern data protection and
privacy for all EU residents. PSD2 requires financial institutions to provide third-party providers with access to customer
data via open APIs. It also mandates that financial institutions and their TPPs implement related data security controls.
Innovative and Competitive
The pace of innovation and ease of use for the consumer are big drivers of open banking. Companies such as
Venmo, Currensea, Plum, Betterment and Rocket Mortgage offer customers easy ways to make payments, spend,
invest and understand their finances and get approved for a loan.
Marketable
Europe (and the UK in particular) is an early indication of the open-banking revolution. There, TPPs have grown
from approximately 100 to more than 450 in under two years, and their focus has expanded from payments and
transactional retail banking to encompass the entire financial value chain.
According to Accenture, built on data sets covering 20 of the largest economies responsible for over 75% of
global GDP, as much as US$416 billion in revenue will be at stake as the open-banking data wave arrives.
Technological
While interfaces are nothing new, more modern formats such as JSON and RESTful APIs are lighter, more flexible
and require less bandwidth – making them ideal for a mobile-first world. Traditional banks are also modernizing
and rearchitecting their applications to compete against neobanks and fintechs.
Dynamic
COVID-19 has affected nearly every business, some rather dramatically. Many sectors, including finance and banking,
are still adjusting operations. The pandemic has accelerated remote workforces and driven the demand for a
contactless economy. This is driving network and application rearchitecture as well as adoption of and transition to the
cloud while increasing the use of open APIs for many services, including open-banking APIs for financial services.