The power of open banking

Open Payments – along with the wider trend toward open banking – is just the latest way in which tech innovation is shaking up the world of financial services. How real is this trend however, and what impact will it have?

Economies are rapidly digitising. Digital first technologies and companies now dominate industries ranging from retail to taxi services. Finance too is digitising, with an impressive 88% of financial institutions believing they will lose market share to data driven fintech start-ups in coming years.

In a digital economy, data is one of the most valuable commodities.

When data is siloed however, or buried in spreadsheets, the value inherent in it may not be being used effectively.

As in other sectors, open banking and payments aim to better utilise data in the finance sector, with the aim of creating smarter financial services which are more responsive to customer needs.

For example, a big bank sharing consumer data with third party financial services providers would allow these financial service providers to develop better customer profiles. Marketing efforts can then be refined, and more value added to their audience.

For customers, knowledge is power

For customers, greater control of personal financial data means a greater ability to effectively manage personal finances. From tracking spending in real time, to budgeting and saving – there are now a world of apps that can help us track and manage our finances. Open banking allows these apps to access banking data in real time, empowering users to take control of their finances.

Open banking could also mean not just a greater array of businesses entering the financial services market, but also a wider array of products.

Better data access will make it easier for financial services providers to identify underserved parts of the market, and trends which might otherwise have remained obscure. And the lower barriers of entry to fintech,  including off-the-shelf fintech plugins and similar, make it more economically viable to build a business in a niche which may have previously been unattractive or unviable for a big player.

This ultimately means more choice for consumers, and the disruption of existing business models.

Impact on the fintech sector

As with open-source software, open banking lowers technical barriers of entry to the financial services market. This makes it easier for challengers and start-ups to enter the market, and challenge legacy financial institutions.

This could mean a greater array of players entering the fintech market leading to greater competition and more innovation. We are already seeing the fintech sector diversifying and ever more businesses entering the market with investment in the fintech sector hitting $44 billion in 2020, up 14% on the previous 12 month period.

An open-source approach to banking data has huge implications for the fintech industry with the potential to reshape business-consumer interactions. This can give fintech companies the opportunity to work smarter and gain a competitive advantage in a fast-moving market. Not only this but shared data also increases fraud detection, making it easier to spot discrepancies in the data and take action.

All of which means a more competitive sector, dedicated to servicing an ever-greater array of customer groups.

Distributed data

Data is transforming the financial services industry just as it has transformed so many other industries. Where data, and the power of data, was once concentrated in the hands of a relatively small number of institutions, technology has since unleashed a data revolution that distributes data more widely.

This gives individuals and a wider ecosystem of businesses the opportunity to harness the power of data too. Open banking is key to this and has the potential to rebalance the financial sector away from legacy institutions — empowering ever more individuals and companies to develop bespoke financial products suited to a greater range of people and businesses challenges.

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