With the emergence and continual advancement of financial technology, coupled with shifting preferences among banking consumers toward digital solutions, the time is now for forward-looking financial organizations to capitalize on the many benefits open finance provides.
Open finance is designed to give consumers greater control over their financial data and, ultimately, greater flexibility in how they manage their financial lives. Open finance enables consumers to choose to share their financial account information (account balance and transactions, investment holdings, etc.) with third-party financial service providers through application programing interfaces (APIs). This banking innovation provides multiple, highly versatile provider and end-user experience advantages, and is becoming a major source of innovation which is rapidly shifting the financial services industry.
The adoption of this practice has been predominantly seen throughout Europe, Asia, and Latin America driven by regulatory oversight, and the U.S. is making significant advancements which are primarily industry driven. As a result, if properly executed, the use of open finance within the U.S. can assist in the acceleration of banks’ digital transformation, resulting in more diversified revenue opportunities and aligning with changing consumer preferences.
While the concept of customers voluntarily sharing their financial data with third party entities has been around for some time, the global open finance market is expected to grow from $15.13 billion in 2021, to $48.13 billion in 2026 1. As a result, several financial institutions have already begun implementing open finance solutions to account for this surge within the market, and to keep up with this growing consumer demand.
“Innovation fueled by open banking has forever changed what consumers expect from financial services. People expect connected experiences among the many apps and services they use to manage their financial lives,” said Raja Chakravorti, Universal Access Lead for Plaid.
Capco identified key activities financial institutions should focus on in it’s recent paper, Current State Of Play & Lessons From Open Banking (Read Here), including: