Since the launch of open banking, it has been positioned as a transformative force in people’s lives. It has the power to fundamentally change how people interact with their finances and the industry as a whole.
By 2029, it has been estimated that open banking will reach an estimated value of $94.14bn. Even though open banking continues to experience evolution and growth, there are varying levels of adoption and regulatory frameworks across countries that the sector will need to bear in mind to successfully implement it.
The UK pioneered open banking and continues to be one of the leaders globally. The country has seen the number of users increasing, with there being 12.09m active users of open banking in 2024 and 223.9m payments made. This is an increase of 72% compared to the year before.
As open banking continues to flourish, it is positive to see that the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) have outlined how open banking can expand further in the UK, and also be used in variable recurring payments and e-commerce. With this move, customers will have much more control over regular transactions due to an independent entity overseeing their payments.
In a similar vein, the European Union (EU) has also driven their plans for open banking forward. The EU is strengthening their regulation around how customer data is shared with third parties through the revised Payment Services Directive (PSD2). This aims to sharpen open banking innovation and competition within the market. It is important to note that the level of adoption and implementation of open banking is different across member states.
Going even further, Australia is integrating open banking with a cross-industry approach by applying this to other industries such as telecommunications and energy. The Consumer Data Right is underpinning open banking in Australia. This regulation is allowing customers to have more control over how their data is shared across industries.
However, the US is behind other countries in their open banking maturity. The country has taken steps towards the implementation of open banking, but compared to the UK, EU, and Australia, more can be done. In the US, the Consumer Financial Protection Bureau has finalised the rules which enable customers to transfer their data between financial organisations only. Yet, there are a number of data security concerns which has halted open banking from going much further. Not only that, but it is also unlikely that much, if any progress, will be made on open banking with the current administration in the US.
Globally, open banking has seen good growth. It is important for financial services organisations to continue to drive this growth and ensure that they are protecting their operations and customers. At the same time, banks must also make sure that they are furthering innovation and competition in the market through open banking.
To do so, financial services organisations must use application programming interfaces (API), which power open banking. With APIs, if a customer gives their consent for a third-party app, such as a budgeting app, to access their financial account data, the API will automatically request permission from the bank to access this data. Once this is authenticated, the customers’ data will be shared via the API. With this, the third-party app will then be able to analyse the customers’ financial data. This will enable the app to offer insights and perform actions on behalf of the customer, such as making a payment, but this is dependent upon the permissions that the customer has given the app.
As with all technology there is a risk that open banking increases the attack surface, and therefore the potential of breaches and cyber threats. As such, to make sure that the bank itself and their customers are protected, all information must remain confidential and should be encrypted. In addition to this, all financial services organisations must ensure compliance with national and international regulations, like that of the General Data Protection Regulation (GDPR) in the EU and UK.
There is no doubt that open banking will continue to evolve, so this is a good opportunity for all countries to be learning from one another to perfect their frameworks. Open banking will not only benefit financial services organisations, but also customers. With greater interconnection of financial services, it fosters competition and drives innovation. It is essential for customers to have a clear understanding of how they can benefit from open banking to ensure that it is embraced and continues on the current upward trajectory.
Steve Morgan is Global Banking Principal at Pegasystems
“What is in store for open banking globally?” was originally created and published by Retail Banker International, a GlobalData owned brand.
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