Without a doubt, open banking initiatives will be one of the biggest trends to watch in the financial services sector in 2019.
The past 18 months in particular have seen a surge in activity across all regions, with open banking at or close to the top of the IT agenda for most financial institutions. At a global level, 82% of banks surveyed in Ovum’s 2018 ICT Enterprise Insights study reported that their institution has a clear strategy around creating open APIs for third-party use. This proportion has increased from 56% in 2017, highlighting the step change we have seen in the role that open banking is now playing in the future direction of the industry.
To consider what this means in practice, it should be noted that there is no single definition of the term "open banking". This is because the concept is viewed slightly between regulatory jurisdictions and financial institutions themselves (there are five different API standards initiatives in Europe alone). Nevertheless, the common theme across all the regulatory frameworks and bank initiatives is in enabling third-party access to customer data and banking services with the aim of creating new and enhanced services. This means a fundamental change to the way in which banking products and services are distributed and consumed on both the corporate and the retail side.
There is a clear consensus on this point in the industry. Just over 82% of retail banks (up from 56% a year ago) now believe that partnering with third parties will enable them to improve their customer proposition. This point is particularly important, because many of the initial expectations around the impact of some of the regulator-driven open banking frameworks suggested that this would open the door to the rapid growth of new entrants and non-bank players in the value chain. While open banking initiatives have created clear opportunities for these players, much of the innovation in the market until now has been from larger incumbent banks looking to launch new and enhance existing services.
At the same time, 81% of banks believe that the investments they are planning or have made in delivering open interfaces for third parties will also enable their own IT teams or development partners to better bring innovation into the business from ISVs and the fintech ecosystem.
In many ways, this is potentially even more significant for the future of the industry. Open banking is pushing many banks into rethinking their entire approach to product and service delivery and the IT cultures and architectures that underpin it. The coming year will see more banks bringing new propositions to market and enhancing and upgrading their capabilities to deliver innovation.
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