Hans Tesselaar, Executive Director of BIAN
Throughout 2023 we have witnessed significant strides in open banking, with a heightened focus on accessibility and ensuring the concept can reach its potential, with the value of open banking transactions worldwide reaching 57 billion U.S dollars in 2023. As we enter 2024 and head towards a ‘new era’ of banking, there is a clear emphasis on the need for collaboration to allow further development and innovation within open banking in 2024.
What has the introduction of regulation shown us?
In June 2023, the European Commission set out its intentions to advance open banking with the introduction of PSD3. The update to its Payment Services Directive (PSD2) shows a commitment from the EU to realise the potential of Open Banking. While PSD3 sets out several key changes to realise its goal of driving Open Banking adoption forward, the aim is to standardise payments across the EU.
This regulation puts fintechs and banks on a level playing field, giving technology providers more control over the service they provide to customers through easier and more secure data sharing, while reducing infrastructure costs.
Europe is not the only one taking a regulatory approach. The UK for example, a pioneer in Open Banking innovation on a global scale, has been prioritising regulation since the launch of Open Banking in 2017 by the Competition and Markets Authority (CMA) following the introduction of PSD2. Now, its recent announcement from the Joint Regulatory Oversight Committee, regarding its commitment to a long-term regulatory framework, reaffirms its commitment in the area.
The UK’s commitments to regulation has demonstrated its resilience, evident from its performance in 2023, where payment transactions doubled compared to the previous year, marking an impressive 88% surge.
While these regulatory measures ensure banks and fintechs are all offering compliant services, independent regulation limits innovation without the correct considerations, and often disregards the needs of the consumers and in favour of levelling out the industry.
The regions driven by regulation must be open to learning from those who have taken a different approach, to ensure successful practices are promoted. But how do they do this and continue to grow throughout 2024?
Taking inspiration from other approaches
Focusing on regulation must not overshadow market demand and meeting the needs of the consumer. Those that have taken a regulation driven approach, should look to likes of Singapore, which reveals what governments and organisations should be prioritising when it comes to open banking.
Singapore’s market-driven stance has led to high open banking adoption. 90% of professionals consider open banking either a ‘must have’ or ‘important’ and a further 90% agree that it has also had a positive impact on the industry and made it more collaborative. This is despite no mandatory requirements.
APAC has seen significant adoption over the past few years due to the opportunity it has to make the industry more collaborative and the potential to bring about fairer and more equal financial services.
The space, however, still remains in the early stages of development. Many banks are just starting their digital transformation journeys, and struggling to overcome issues surrounding interoperability and closed or outdated architectures. Overcoming these issues, no matter the approach, will be key to open banking success over the next 12 months.
Why is there a need for interoperability within banking?
The need for interoperability has never been greater. Only by creating create an ecosystem of fintechs, technology vendors and aggregators can banks boost the speed at which best- of – breed products can’t be implemented to meet customer demand and make the most of the opportunity that lies within the open banking space.
This is when a ‘Coreless Banking’ approach becomes fundamental. Coreless Banking empowers industry collaboration, ensuring customers have access to services that are aligned to their needs, and as a result, encouraging open banking adoption. Coreless Banking provides endless opportunities for financial services industries to connect, collaborate and upgrade, and places customer demand at the heart of its capabilities.
Looking to the future
2023 marked a significant year of growth for open banking. The regulatory landscape has seen changes and played a crucial role in driving substantial growth. However, with a new emphasis on regulation it is important we do not overlook what needs to be done to ensure continued development.
Learning from a number of diverse approaches is vital as we enter this ‘new era’ of banking in 2024. If the industry is able to take inspiration from different approaches, and implement a Coreless Banking framework that not only offers a ‘customer first’ approach, but provides a platform in which banks and fintechs can collaborate to drive innovation into 2024, the future of open banking will be bright.
