How open banking is changing the payments landscape worldwide?

 

With the emergence of new technology, the world of the fintech industry is changing drastically. Financial institutions and Banks are gradually making a shift to experiment with new technologies like open banking technology. 

Banking operations that earlier required a person to visit the bank have been replaced by new technology that allows banking operations to be carried out from anywhere using electronic devices.

The rise of open banking has revolutionized the financial services industry by establishing state-of-the-art to manage finances. It describes the process of banks and other financial institutions permitting customers to share and control their financial data with trusted open banking providers with the use of open banking APIs. 

Open banking is accepted globally where more than 87% of countries have established some form of Open APIs in the banking industry. The global open banking market is expected to grow $37.77 billion in 2025 at a CAGR of 25.7%. Allied Market Research says, the open banking market size to expected to reach $43.15 billion by 2026, growing at a CAGR of 24.4% from 2019 to 2026.

The era of digitalization has characterized financial services in 3 words: swift, easy and flawless. Let’s see how open banking technology is changing the FinTech industry and provides unique opportunities to banks, customers and financial institutions. 

What is Open Banking Technology All About?

Open Banking is a systematically designed model which allows licensed third-party providers (TPPs) to access customers’ financial or banking data using application programming interfaces (APIs). The bank shares this banking data only with the consent of the customers. Open banking API providers gives control to the customer to select what type of financial data TPP can access and for how much time. Open banking technology enables direct banking transactions between businesses and customers by making cross-platform payment APIs.

What is Open Banking Called Globally?

Open Banking is a generic term that is used to set the regulations and initiatives worldwide. Different countries have different names for their open banking systems.

What is the impact of open banking on the financial industry?

Open Banking is enhancing competition in the FinTech market and it is spreading rapidly to different countries globally. According to Statista, the number of open banking users globally is expected to grow at an average annual rate of 50% between 2020 and 2024, with the European market being the largest. More than one million customers in the UK have shared their banking data with trusted third-party providers. 

The economist suggests that adopting open banking could help banks to influence

According to the Economist research, they suggested that espousing open banking technology could help banks to control their internal data. As per the survey conducted, 45% of respondents have started to transform their current business models into digital ecosystems, and 29% of respondents mentioned that open banking is a part of a bank’s innovation strategy.

Any FinTech solution company or bank can use open banking technology to create new products and enhance customer relationships. 

Who is benefited from Open Banking Providers?

Research from Tink shows that open banking is increased from 55% in 2019 to 71% in 2021. Both customers and service providers are benefited from the open banking model. Let’s see how open banking technology is benefited:

Benefits to Customers

Open Banking to customers comes up with multifarious benefits and one of the most important benefits is to provide choice to customers. Generally, banks give only limited options and similar types of services to all the customers. Open banking provides the benefit of choice to customers as they have the freedom to choose from different service providers available. It also permits customers to take their financial decisions and manage their banking accounts.

• Facilitation payments using electronic devices

Open Banking APIs saves customers time as they don’t have to wait in long queues to purchase the items at the stores. The concept of digital wallets like GooglePay, AmazonPay, PayTM, ApplePay etc. allows customers to make payments for their purchases using their smartphones.

• Easy Payment and Currency Exchange 

The increasing number of migrants worldwide for better opportunities means there is an upsurge amount of money to be sent back to families. International money transfers and payments are expensive to process for banks where they have to pay transfer fees to the money transfer business. With FinTech companies, this process of paying transfer fees have become less expensive, faster and smooth. Customers can easily transfer money, make bulk payments and pay the bills effortlessly using the mobile application. Open Banking Providers offers currency exchange services securely and easily to transfer a small amount of money overseas.

• Customized Product

Open Banking Technology offers customers customized product and service options, which most financial applications fail to provide. The concept of service personalization in banking to benefit customers is introduced by Open Banking APIs where customers can access multiple banking accounts from one place and get the best deals. All these benefits are provided to customers just by using a single application.

Benefits to Banks and Financial Institutions

• Collective Advantage

Banks can stay ahead of the competition using open banking technology that lets the bank explore the data-sharing agreements with financial as well as non-financial institutions.

• Banks can be futuristic

Open Banking providers allow banks to be futuristic to understand data privacy and give the best customer experience.

• Boost the Customer Engagement

Open Banking APIs providers assist banks in boosting their appeal as an entity thereby permitting them to fulfil the changing demands of both new as well as existing customers.

When banks and fintech merge and use open-source technology, they can offer customers a complete service or product that will help to upsurge customer satisfaction, the loyalty of customers, and increase revenue. 

Benefits to FinTech

• An opportunity to meet customer expectations

FinTech organizations get an excellent opportunity to meet the requirements of customers using open banking technology. The organization can provide new and better services like account comparison, personal finance management, and access to credit services just using a single application.

• Banks can extend their services using new technology

In this cut-throat competition in the banking industry, banks look for the best digital technology to serve the best to their customers. 

Banks can offer the best opportunity to their customers using open banking providers which can give the best customer engagement and retention.

Benefits of Open Banking Technology

Open Banking has the potential to reinvigorate the banking sector with some benefits for both customers as well as bank owners. Let’s understand the benefits of open banking.

• Effortless Payments

Open banking payment services allow customers to effortlessly make direct and flawless payments using their bank account without mentioning their card details. Customers just need to make a few steps of authentication and then confirm the payment through a banking application or website.

• New-fangled services and products 

Open banking brings a lot of new possibilities and innovative products. This means customers can get hassle-free, swift and seamless banking operations. On the other hand, businesses can enter into new markets and provide the best customer assistance and retention of customers.

• Culture Modernization

Open banking inspires banks to elevate their digital infrastructure so that they can share customers’ data with utmost security. Modern payment technology aids banks to improve their data structure and digitalization.

• Upsurge in the financial market

Open banking API providers aid banks to get more clients and enlarge their business by providing the best services. New offers and services help to attract new customers and retain existing customers.

Open Banking improves customer experience and helps in generating revenue for banking and other financial institutions.

Are there any risks of online banking?

Like most of the things in life comes with positive and negative sides, in the same way, open banking comes with pros and cons:

• Interpersonal relationship with customer reduces

In the era of open banking, building an interpersonal relationship with the customer is impossible. With the emerging new technology, banks and financial institutions are digitally providing various banking services. The person-to-person interactions between the customer and the bank used to be the foundation of better customer service. Due to digitalization the personal relationship and brand loyalty between the customer and the bank and financial institutions is interrupted.

• Trustworthiness of customers

Until now there has been a lack of interest or credibility on the part of customers towards open banking and they resist sharing their financial data. Most of the customers do have abundant knowledge about the working of the application and its security which results in fear of sharing financial information online.

• FinTech replaces Traditional ways of banking

The FinTech companies are growing in leaps and bounds and have replaced different traditional banking services, resulting in a major drawback for the banks. Open banking API providers cater a wide range of digital banking services like transferring money, payments for purchases, applying for loans, bill payments, bulk payments etc. across the world.

Growth of open banking globally in near future

In the past few years, the usage of Fintech has been accelerated with an increasing number of businesses adopting this vigorous technology that allows them to offer the best services.

However, there is a scope of growth and prosperity with open banking that can carry potential change in the way of banking.

The UK is one of the leading countries in the open banking sector. In the UK 294 regulated providers of open banking are available (215 TPP and 79 account providers), as per the December 2020 update of open banking. Moreover, till January 2021, more than 2.5 million customers have used products enabled with open banking. According to PWC Research, 64% of adults will be adopting open banking by 2022.

The European market started using open banking APIs after 12 to 18 months it started in the UK. Research from Tink showed that 58% of European FinTech decision-makers still see open banking as an opportunity.

In 2016, Unified Payments Interface (UPI) was launched in India. UPI allows customers to access banking accounts using registered applications and can make transactions to other banks. India is having a hybrid approach to open banking which is partly driven by the market and partly by regulations.

Open banking is still developing globally, some countries are accepting open banking technology rapidly whereas some are lagging behind. Over 70,000 businesses are using the GoCardless facility so that customers can easily make digital payments and can perform various banking transactions.

Last Words on Open Banking Technology

Open banking is the future for all banks and fintech businesses. Globally there is an increase in competition and the development of new products and services is possible when more and more banks and financial businesses are accepting and connecting with open banking technology.

The financial sector is changing its traditional structure of banking operations by adapting new technologies of open banking. The evolution in fintech is going to be a remarkable thing that will help customers to perform hassle-free banking transactions from anywhere in the world. Open banking plays a significant role in the future of banking and financial businesses.

Traditional banking won’t get absolute by open banking. With the growth of open banking, there will be more competition for tech giants, banking sectors and financial institutions.