Last editedMay 20223 min read
It’s come a long way, but what is the future of open banking? Open banking gives consumers more control over their data while opening up a wealth of possibilities when it comes to financial service innovation. Here’s what to expect with open financial technologies in the decade to come.
What are open financial technologies?
Open banking describes a process of financial institutions sharing consumer data with regulated third-party providers. This involves direct consent from the consumer, who gains greater control over how their financial data is accessed, stored, and shared. Australia’s New Payments Platform (NPP) is a prime example of how open financial technologies are being put to good use. This real-time payment and settlement system serves as a go-between for financial institutions.
It developed a PayTo service enabling customers to pre-authorise access to third parties using open banking. PayTo allows merchants and their customers to take advantage of real-time payment settlement.
Trends of open banking in Australia
Australia’s Consumer Data Right (CDR) scheme has helped get the ball rolling. Consumers now have greater control over their own financial data, but there are also plenty of benefits for businesses. With accessible banking options, companies will have a wider range of tailored services to choose from. Trends indicate that CDR will shift from financial service providers alone into other areas of the country’s infrastructure, including healthcare, energy, and insurance.
In the past Australia’s four major banks (Commonwealth Bank of Australia, Westpac Banking Corporation, Australia and New Zealand Banking Group, and National Australia Bank) controlled most of the financial market. Yet the future of open banking market share could tip the scales in favour of smaller financial service providers, with the help of start-up fintechs and disrupters.
Another trend to watch is the rise of recurring payments and subscription services. For example, over 70% of Australians subscribe to some form of subscription TV service like Netflix or Disney Plus. Open banking makes recurring subscription payments easier with secure, automated methods from third-party providers.
Global trends of open banking
We can look beyond Australia to see how open banking is changing consumer attitudes towards financial services. The pandemic has accelerated the rise of digital payments, as consumers were required to stay at home to make purchases. This has made many more receptive to the open banking market and data sharing. For example, in the UK consumers were more willing to share data if they found a service valuable. Nearly 40% of job-stressed UK consumers also stated that they would find money-saving apps appealing, assisted with data gleaned from open banking. The same report found that 60% of Brazilian consumers would consider open banking services, a percentage rising to 80% for specific, appealing products.
This indicates changing attitudes to open banking to enhance everyday financial products and services. If consumers can be shown the concrete ways that open banking and data sharing can improve their lives, they’re more open to using these services.
Here were the top three reasons why SMEs and consumers surveyed felt open banking would be useful:
1. Keeping multiple financial accounts in a single place would make them easier to manage. SMEs can also benefit from integrated services.
2. More convenient payment options would make online shopping easier. This trend is already prevalent with the popularity of e-wallets and payment apps.
3. Open banking could provide better value for money than more traditional financial services. Consumers worldwide want to be able to compare their options and get more for their money.
Open banking and the future of financial services
The trends are clear: there is a growing appetite for open banking, not only within Australia but worldwide. Consumers want more efficient and personalised service tailored to their unique financial needs. Secure payments are also vital for open banking’s future, as new platforms must gain trust from new users with a combination of access control and multi-factor authentication.
So, what will open banking and the future of financial services look like? The two will go hand in hand as more countries embrace open banking frameworks and technologies. Banks must adopt end-to-end digital technology that facilitates innovation while collaborating with third-party fintech companies. Future financial services should be based on open APIs with data-driven AI analytics for better personalisation. All of this will take time, but the seeds are already in place at home and abroad.
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