The Open Banking Initiative Is Growing But What Are The Challenges For The Sector?

By Author: Octopus Competitive Intelligence Consulting Agency
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The Open Banking initiative is growing but what are the challenges for the sector?

In light of the Open Banking initiative in the UK, what matters for businesses going global? Across Europe, adoption is rising. Yet, how does worldwide adoption compare? And what are the implications for businesses going global? Yes, the Open Banking initiative is growing but what are the challenges for the sector?

In the last year, several countries have progressed far in the effort to open finance. But we wanted to see how much the global open banking landscape is changing.

There are some cutting-edge open banking solutions. We address the global status of open banking, where the opportunities are, and more.

What is the Open Banking initiative?

Open banking is a new way for banks and their customers to interact. Traditionally customers were locked into one bank. They were unable to take their business anywhere else easily. Now with open banking, it’s possible for a business, like a third-party app, to access your bank account.

Meaning apps can give you better and more personalised service. Open Banking ...
... refers to the set of principles allowing users to share financial data. Shared securely with trusted third-party providers of their choice. It involves removing the friction between consumers and financial services providers. So users have more control over where they put their money, what services they use, and how they pay for things.

What is the OFPP?

The Open Financial Platform (OFTP) is a set of standards for a financial platform. They enable generic, secure, open bank account connections and other financial assets. The OFTP allows the development of a broad range of financial products and services. In a digital environment via automated, machine-to-machine connections to bank accounts.

The OFTP is led by the UK Financial Conduct Authority (FCA). In partnership with:

European Banking Authority (EBA)
The Japan Financial Services Agency (FSA)
The Australian Securities and Investments Commission (ASIC)
OFTPs are open, secure and standardised rules connecting banks, customers and technology providers. It will enable secure access to bank account information via applications. Most commonly, online banking, smartphone apps or wearable devices. You may be able to set up direct debits, see your account balance and have instant access to your funds.

What is competitive intelligence?

Competitive intelligence is the finding & critical analysis of information to make sense of what’s happening & why. Predict what’s going to happen & give the options to control the outcome. The insight to create more certainty & competitive advantage.
How does Open Banking work?

Open banking allows users to access their banking data from other apps. For example, if you wanted to pay someone for their services, you could use an app to take a photo of the bill payment. Then select the bank account from which you want to pay them. And then, the app would communicate with your bank to make the payment.

The customer is the owner of their data, so they decide whether they want to share it with an app. To share their data, the app will be authenticated by the user’s bank and authorised to access their data. The customer decides what information to share. Open banking also gives customers more control over their data. The data sent between the app and the bank is encrypted to ensure it remains secure.

Benefits of Open Banking

Enhanced customer experience
Open banking creates a seamless customer experience. By integrating data from different sources to create more actionable insights and recommendations. For example, open banking data can be used to create a “snapshot” of your financial situation. Including information about your assets and liabilities. This snapshot can be used to generate tailored recommendations to improve your finances.
Increased choice and innovation
Open banking empowers customers to choose the financial services and providers they want. This creates an environment that promotes competition, innovation and better customer service.
Due to increased competition, open banking should result in lower costs.
Open banking may increase transparency and trust between customers, providers and service operators.
Open banking will help mitigate risks and vulnerabilities in the current financial system.
Who benefits from Open Banking?

Customers. Open banking provides customers with more choice, lower costs and increased transparency.
Financial institutions. Open banking creates a level playing field. It enables banks to compete with new, innovative companies to provide financial services. This promotes innovation and increases customer satisfaction.
Regulators. Open banking has the potential to strengthen security and resilience. Reduce risk and increase trust in the financial system.
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Disadvantages of Open Banking

Data breaches are common, and security risks associated with open banking are significant. However, regulators and industry are implementing standards and best practices to mitigate risk.
Customers own their data but may not have the technical knowledge to protect it. Therefore, customers may be more vulnerable to data breaches and fraud. Potentially undermining the financial system.
Data quality is a challenge in the banking industry. It’s likely to be also a challenge in an open banking environment.
Open banking could create more complicated end-to-end user experiences. This situation may result in new challenges and complications.
What’s going on with open banking?

There has been a significant increase in payment applications but what’s going on in the sector?

Account-to-account payments are becoming popular.

Account-to-account transactions are on their way to becoming mainstream. Debit cards still dominate (for now…). But platforms use cards but will try and move customers to account-to-account payments.

Large-value, infrequent payments will be an important area of interest. The travel sector is a leading light in the industry. Where banks have focused on account-to-account payments for the Air Transport Association. Emirates Airlines, in partnership with Deutsche Bank, recently launched Emirates Pay.

The B2B sector is becoming more active

Account-to-account payments are no longer the norm. Banks are on a roll. They are linking solutions to offer account-to-account payment initiation via Request to Pay. And connecting data with payment capabilities could help drive better efficiency in accounting. Open banking could be used to minimise tax and reduce the effort required to file tax returns.

The open data economy is ready for the world

The Consumer Data Rights (CDR) legislation was passed in Australia in 2019. This has helped to establish an open economy. Open Energy is soon to be applied to utilities. Allowing consumers to take advantage of the power of an open economy. But our experience on the ground is different. We have found that Open Banking is experiencing teething problems. Launch dates were missed, and only one of the big four banks was ready. Some product providers have had to make redundancies to the local workforce. All down to the delays.

Brazil has made progress on open finance with its Joint Resolution for interoperability. Open Health is next on its agenda, and it will allow Brazilian healthcare data to enter the open data economy.

Europe still hasn’t caught up yet.

The EU is moving in the right direction by conducting a series of PSD3 consultations. This includes a revolutionary open finance framework. However, the UK might get months behind as the OBIE slowly evolves into a new Entity.

There is also a lot of talk about PSD3.

It is time to focus on PSD3 as PSD2 becomes old news

Despite achieving some of its objectives, PSD2 has created a somewhat fragmented landscape. And created barriers in the journey to open finance. But what does all this mean if you are trying to build a Europe-wide solution? As the EU Commission moves forward, businesses can expect PSD3 to become a reality.

Despite the great strides made over the past year, there are still difficulties

We believe that businesses’ most significant difficulties when pursuing European growth are:

Poor open banking connectivity
Lack of API standardisation
The connection between inconsistent regulations and customer experiences
We understand that API uptime is excellent, but payment conversion is even better. Open banking-connected banks are not viable if they prove unreliable when entering markets. But it is important to remember that you cannot simply apply what you do in the UK to another global market, and that’s when you need a connectivity specialist.

The Open Banking initiative is growing, but what are the challenges for the sector?

In conclusion, open banking is not a new concept. But the rise of AI and the ability to process more data faster has brought it back into the spotlight. However, privacy concerns are paramount when discussing any new type of data-sharing system. Changes in banking will affect businesses and individuals who integrate with bank accounts, and it also puts banks in a position of needing to act as technology partners. It will result in the alteration of the investment and funding landscape forever.