In a world that is increasingly becoming more connected and democratised, banking and financial institutions serve as a significant catalyst of change. And this can be seen with the rise of Open Banking.
Connecting via third-party application programming interfaces (APIs), Open Banking enables traditional banks and FinTech companies to share data and collaborate to offer products and services that the others cannot. The result? A far richer, caring and customer-centric experiences as such partnership give consumers unprecedented access to more advanced financial options built on data-driven insights.
The Challenges of Open Banking
A study of the future of retail banking conducted by The Economist Intelligence Unit revealed that in 2025, expected key strategic priorities would be Open Banking (30%), cutting costs (29%), migrating to digital channels (28%) and digital marketing and engagement (27%). Indeed, today’s unrelenting focus on data will drive Open Banking to the forefront of retail banking innovation.
Today’s unrelenting focus on data will drive Open Banking to the forefront of retail banking innovation.
Top Strategic Priorities by 2025
In the current scenario, most banks have total control over their customer data – a closed model that allows them to own the financial market as the only source for traditional services – and keep competitors at bay. This control changes with the data sharing impact of Open Banking regulations. With data sharing, capabilities will expand to items such as account aggregation, financial management and credit scores. It will also result to integrated lending and accounting platforms that will make it easier to create customised products for target customers.
Of course, this optimistic depiction of the future of Open Banking doesn’t come without challenges. Some of them include:
1. Customer Acceptance
Lack of awareness and education around Open Banking’s capabilities could be a challenge. Customers need to be convinced to share their data as data security and privacy remains a major concern. The demand for value is also a challenge as studies show that most consumers need to see tangible value.
2. Consumer Awareness
This reluctance is largely a result of customers threading on unfamiliar banking grounds. Banks must deliver effective communication and education especially with changes to banking terms and conditions.
3. Competitive Disadvantages
Backed by strong investments, FinTechs, pure-digital companies and non-banks such as Amazon have created a new digital banking ecosystem that traditional banks are hard-pressed to emulate. From under $2 billion in 2010, investment in FinTechs will reach $150 billion between 2019 and 2021 worldwide.
4. Data Sharing Blues
Open Banking is built on data sharing. Difficulties from control and exposure of customer data to product cannibalisation can stifle meaningful participation in this ecosystem.
5. Legacy systems
The complexity of legacy systems can hinder effective interoperability with open banking APIs and the shift to agile, customer-centric systems.
The Future of Open Banking
A unified digital platform, as a result of the Open Banking revolution, will make financial products and services more transparent. That’s on top of making them faster, cheaper, and more convenient.
More banks are securing their role in the Open Banking model by publishing their APIs and actively trying new FinTech partnerships. This revolutionary collaboration between banks and FinTechs will enable consumers to enjoy better financial management, make better decisions, and have more choices of innovative financial solutions.
A unified digital platform, as a result of the Open Banking revolution, will make financial products and services more transparent. That’s on top of making them faster, cheaper, and more convenient.
For example, Taishin Bank’s Richart was developed as an open bank, which integrates all the services that customers need in one platform. From account opening, saving money, investing, to foreign currency exchange, Richart and its partners created a user-centric digital environment to respond to users’ expectations, providing customers with more innovative and complete financial services with partners from different industries, including the telecom company, FinTech start-ups and insurance companies.
In the past, customers need to fill out replicated application forms when they apply for different financial services. To save time for customers, Richart use open API to transfer customers’ information between different partners and help customers fill out forms automatically. Once customers become Richart members, they will no longer need to fill out forms when they apply for other financial services on Richart App. By simply clicking a few buttons, customers can easily complete their application of various financial services such as insurance purchasing, foreign currency exchange, and investing.
In the future, we will see more platforms such as Richart being implemented in different parts of the world.
Today, banks can start to gradually offer platforms for financial service infrastructure similar to disruptors like Amazon, iTunes and AliExpress. While they may lose service fees, volume gains will be huge as this enrichment of the user’s financial journey will attract even more new customers.
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