Open Banking – How is the world gearing up?

Open Banking is driven mostly by FinTech companies and banks with the intention to increase innovation and offer customers better products and services. It is reorganizing and flattening the banking industry and is the first step towards an open data economy. While it’s a mandate across several countries from a regulatory and compliance perspective, many of these countries have realized its true essence of it.

One of the biggest puzzles that the banking industry is trying to solve across most of these countries is how to make the most out of the open banking implementation. Looking back at history, banking automation was born in the UK in 1967, when they installed their first-ever ATM. And now after 50 years, Open Banking has ushered in a new era of digital banking. It’s a widely accepted fact that the banking industry needed a desperate makeover.

With FinTech companies innovating at a rapid pace and banks playing slowly to catch up, Open Banking has lit the fire at both ends to ensure that the banking sector keeps up with the tech and their fast-changing customers. The options now become endless. Executing Open banking is not as fast as was envisioned by these countries and governing bodies. Most of them are still scratching the surface of what it could be. Here is a look at where some of the leading countries are in their Open Banking adoption and maturity.

Faces of Open banking across the globe: United Kingdom – as the early adopters of Open Banking, the UK had defined a very prescriptive standard for the top 9 banks to adopt, while the remaining 5,000 banks could follow any standards to meet the spirit of regulation. Despite being the early adopters, the report published by the OBIE (Open Banking Implementation Entity) shows a slow ramp-up. The year 2021 marked 3 years for the UK open banking chapter. While many banks have adopted the regulations, they are not close to leveraging the full benefits as visioned.

While the CMA 9 has gathered some ground (Barclays, HSBC, Allied Irish Banks, Santander, etc. to name a few) when it comes to Open Banking, the smaller players in the market are still struggling to take large strides. Currently, version 3.1.7 of the Open Banking Standard (a minor update to version 3.1.6 which was released in June 2020) includes new features to help participants further improve Open Banking services.

EU made it mandatory to comply with open banking standards. PSD2 is the Revised Payment Services Directive, the EU regulation that underpins open banking and has existed since early 2016. However, European countries had until early 2018 to incorporate it into their national law, and even once that was done, implementation has been patchy. Open Banking in the EU is promoted by the European Commission.

Based on the requirements of the PSD2 and of the European Banking Authority Regulatory Technical Standards (EBA RTS), Berlin Group NextGenPSD2 has worked on a detailed Open Banking Framework. Talking about maturity from an open banking standpoint, many organizations are still building strategies to increase their revenue or build new revenue streams with the help of open banking.

As of 27 September 2021, an updated version 1.3.11 of the NextGenPSD2 Framework Implementation Guidelines has been published. USA – When it comes to Open Banking, recent research shows, 52% of people in the USA have never heard of Open banking, 24% have heard of it, and 23% know what exactly open banking is (source). These numbers give a clear picture of the open banking maturity in the US market. Open Banking in the United States is defined by growing consumer demand without any legislative mandate.

However, successful apps and FinTechs that offer great value and innovative products to their customers have driven banks to provide access to customer account data using APIs. Unlike the European and the UK market, the US has taken an industry-led approach to build on open banking. There are some legacy standards like the OFX which was adopted by many Personal Financial Management (PFM) solutions.

Financial Data Exchange (FDX) is a new technical standard that is gaining traction in the U.S. Latam Region – Traditionally Latam has been a cash-based economy, with almost 85% of all transactions dealt in cash. But Open banking is going to change the face of the banking industry in LatAm. The demand for digital transactions is increasing day by day as one of the world’s fastest-growing mobile-commerce regions. Experts predict huge growth for FinTechs and Neo Banks that will acquire almost 30% of the Mexican banking industry in coming years and Brazil will generate potential revenue of $24 Billion through Fintechs (source).

In Brazil, Banco Central do Brasil (BCB or Bacen) the financial system regulator has come up with a regulation and implementation calendar. The 4-phase approach will help tap into the potential market, the majority of which is still unbanked and has limited to no access to other products like loads and credits.

Likewise, other LatAm countries such as Colombia, Peru, Chile, Uruguay, and Ecuador are developing their own open banking frameworks. APAC – The EPAA (Emerging payments Association Asia) suggests 3 core elements to drive successful and beneficial Open banking. Open APIs, adoption of new technologies, and fintech ecosystem.

Asia has been the largest market for regional banks for more than a decade now. Despite this, the market is very disrupted due to many fintech startups. There is still a 1.7 billion unbanked population alone in India, Pakistan, China, and Indonesia.

While most countries have embarked on their open banking journey, it won’t be wrong to say, it’s in a very early stage. India has no mandated open banking regulation as of now, yet the National Payments Corporation of India has started working towards an open data economy, popularly known as UPI (Unified Payment Interface).

The UPI market is dominated by Google pay and Phone Pe (Walmart owned) in India and the rest of the players such as Amazon Pay, and Paytm are catching up. In the Hong Kong market, the Open API Framework came into the picture in September 2017 and was published in the year 2018.

By 2020, 50% of the banks have either open banking APIs or any other open banking innovations. Australia introduced CDR (Consumer Data Right), which marked the beginning of the first phase of open banking on July 1, 2020. Australia stepped into a new era of the banking sector.

Open banking in Australia will be regulated and implemented in 3 phases, and each phase will consist of a set of products to be regulated as per the CDR norms set by the ACCC (The Australian Competition and Consumer Commission) No matter what open banking is called across the globe, the goal is to build a banking landscape that is tech-friendly and can innovate faster with the ever-demanding customer.

The end goal for most of these countries is to build a comprehensive open data economy that can scale at the same pace as other facets of the common man’s life. Banks will be able to build user-centric products, enhance customer experience and add new revenue streams, faster than ever before.

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