Open banking: The next generation

The emerging open banking ecosystem

The adoption of open banking has been increasing steadily since its groundbreaking launch in 2017. In the U.K., where it all started, over seven million consumers and businesses are using open banking–based services, according to an April 2023 report by the Joint Regulatory Oversight Committee. While this is good progress, the committee acknowledges that more growth is needed if the U.K. (and indeed Europe) is to remain in the vanguard of open banking developments moving forward. 

Although banks were initially concerned by the obligation to open their systems and data to third parties, they’re largely now appreciating the opportunities in doing so. They too are at an inflection point, both in opportunity and risk. As open banking accelerates, it will encompass more features and functions while taking a greater share of financial transactions. Competitors from numerous sectors are entering the fray, many with AI-driven strategies already in place. The next phase of open banking seeks to create a wider ecosystem that not only offers more products and services, but that can scale while remaining reliable, resilient, and sustainable. According to Juniper Research, the number of requests made to open banking APIs will reach 580 billion globally by 2027—470% more than this year—with European consumers and businesses driving the growth. Banks need to position themselves to fully capitalize on this growth.
 

Going beyond APIs to thrive

To succeed in the emerging open banking system, it will take more than just APIs. All parties, banks included, must invest to ensure that an increasingly wide range of data is available to support APIs with accurate, real-time insights that reflect the increasing breadth of services and use cases. And, being part of an ecosystem of vendors all focused on delivering the best possible customer experiences requires a very different mindset. Banks that are used to owning and controllingall their data will need to open up—not just to a few hundred APIs, but to providing, accessing, integrating, and using data across a broad ecosystem of partners. This will enable them to benefit from the standardization and automation of many data-centric tasks; in fact, prioritization of these foundational elements will be critical to remaining relevant, profitable, and competitive in the open banking ecosystem. In this emerging world, a bank will need to make its data available and useful to customers or third parties in ways that extend its value to them.

Premium opportunities

One of the emerging opportunities is in the provision of premium APIs. While core data sharing is mandated through the open banking regulations, there are many additional datasets that could be provided to customers or third parties as premium services. Banks could identify, package, and deploy these datasets in ways that remain secure and within regulatory guidelines and privacy rules. This could pave the way for new products and services that meet unrealized needs. Banks have close relationships with customers and are well placed to spot the behaviors that unearth these unmet demands if they can analyze data for a segment of one in a timely fashion. Developing new products and services that meet these needs, whether in house or with partners across the open banking ecosystem, will improve customer experience, create stickiness in relationships, and ensure that the bank remains the primary owner of financial relationships.

The potential in digital identities

Another area of potential for banks is digital identity provisioning. Many regulatory jurisdictions, including the EU, are looking at how to create trusted, portable, and unique digital identities that can be used across a range of scenarios, from establishing credentials to accessing government services to authenticating online purchases. Banks retain the high levels of trust and security required to effectively manage digital identities, so for many, this is a natural extension to the open banking product set. Not only do digital identities reduce friction in payments, but the combination of rich and trusted personal data with secure API means much of the infrastructure is already in place.
 

Succeeding with a data-driven culture

To capitalize on the above opportunities, banks will need to focus even more on providing enterprise-wide access to trusted data and analytics tools, and they must leverage powerful AI and advanced analytics capabilities that are able to process granular data from hundreds of sources in real time. Without this strong backbone, banks will struggle to handle the millions of API calls originating from customers looking to transact and navigate financial products in the digital economy. A data-driven culture—one that understands the worth of data of comes not from having it, but from using it to create new value—is essential to capitalize on open banking’s next stage of growth.  

The initial success of open banking APIs has established the principles. Now is the time for banks to be bold and confident in implementing new ways to drive new growth, profitability, and competitive advantage as part of a growing ecosystem of service providers.

Reach out to Teradata to learn about how our advanced analytics can help your organization make those bold decisions and best take advantage of the emerging opportunities in open banking.