Digitisation in the financial sector has seen a meteoric rise as a result of the pandemic, with open banking technology being one of the biggest benefactors of this. The technology’s adoption has skyrocketed over the past two years and with developments taking place all over the world, an enormous amount of opportunities are going to be created for both businesses and customers.
Rolands Mesters is the co-founder and CEO of Nordigen, a free European open banking API that provides regulated connections to major European banks. Here, he weighs in on the topic of open banking’s rise and predicts how the phenomenon will develop in 2022:
Open banking today
Fintech adoption and development has undeniably been growing across various markets. In Europe, regulations, technological infrastructures and significant funding have helped the continent become the ideal breeding ground for financial tech. The European fintech scene has seen tremendous growth, with adoption rates higher than the global average of 64 per cent, with the UK, the Netherlands, Germany, Switzerland and Sweden being particularly receptive to the trend.
In the United States, fintech adoption has been the catalyst for quiet open banking adoption. It is now estimated that almost 90 per cent of Americans use some sort of fintech application to manage their finances in 2021, a significant increase from 2020 when only 58 per cent utilised them. Mastercard’s most recent open banking report revealed that 80 per cent of US customers use open banking solutions, linking their primary bank accounts to third-party financial service providers. This is the case even when they aren’t aware of open banking as a phenomenon, instead, the focus is on ease of use and the integration with their chosen service.
Open banking’s growth has been accelerated by the world’s shift to digital services, the modernisation of the banking sector to keep up with digital trends and the pandemic which has highlighted the extent to which service providers are able to offer financial products remotely. Customers are increasingly choosing to make payments and purchases online, opting for fintech apps and BNPL solutions instead of plastic bank cards. Everyday consumers are making decisions to incorporate fintech solutions into their daily lives, such as using them to manage their finances, trading assets, creating budgets, making payments and more.
Open banking tomorrow
There is no denying that open banking will continue to grow and develop in 2022. The UK saw open banking reach four million users in the three years since it began. In 2022, I predict that we will see that number doubling not only in the UK, but across all European countries. The benefits of open banking are obvious, allowing more opportunities for financial institutions, more diverse fintech services, more customer-centric approaches and products, and giving customers more control over their financial data.
An additional driver for the continued adoption of open banking will be the faster commoditisation of banking connectivity as a service. Access to raw banking data is already a widely accessible service provided by over 280 companies in Europe. The biggest open banking platforms now have coverage that exceeds thousands of bank connections, which has significantly reduced the costs to integrate with open banking APIs. The growing competition will further push the price of connectivity closer to zero across Europe, which is great news for all fintechs that have found open banking to be too expensive.
The rapid commoditisation will not only affect data, but it will also start affecting open banking payments. The biggest applications for open banking payments are likely to be topping up accounts for stocks, crypto and gaming, as open banking has proved to have a great user experience for transferring larger amounts. With the continuous increase in the number of open banking payments providers, I’m confident that 2022 will be the year when we will start to see the freemium business model appear among the “pay by bank” providers.
Furthermore, open banking will continue to change processes ingrained in traditional banking. In 2022, open banking will make bank statements redundant as a document type. Using bank statements as the standard for proof of income has been around for decades. To this day, it is still requested by mortgage lenders, investment platforms and landlords.
Open banking transforms the process, replacing the need to send copies of statements over the internet. Instead, it facilitates a much smoother and more secure way for people to share their banking information within seconds. With the right automatisation, the receivers can also analyse and make lending, loaning and renting decisions much quicker, as they can use tools to scan through the data. The tools can then pinpoint specific information, highlight patterns and determine the reliability of the user in real-time, significantly reducing time spent.
The continued development and adoption of open banking will level the playing field for fintech startups and will allow new participants to join the market, bringing with them new products, services and innovation. Customer-centric experiences will remain the focus within fintech, and the new players will help facilitate the development of new strategies and tools to achieve that.
Overall, 2022 is set to be an even better year for open banking than the current one, with continued growth, greater innovation and higher overall adoption rates.