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Open banking is gaining ground, how much more is there to gain?

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By Rolands Mesters, CEO and co-founder of Nordigen

The growth and expansion of open banking has led to many open banking use cases. In the 3 years since its inception, open banking has already reached 4 million users. The market has been continuously growing at an annual rate of 24.4% and is expected to reach $43.15 billion by 2026. The open banking growth has been accelerated by the natural shift to digitalisation of the financial sector.

Open banking has made it easier for new market entrants and third party providers to gain access and improve their product offerings. More competitors means more competition, leading to innovation. As a result, customers’ needs are met to the highest level by forcing competitors to offer the best product at the best price. And, from ID verification to BNPL financing, the list of innovative open banking use cases is long and varied. 

The open banking partnership with ID verification solutions provider Authologic is a new and exciting use-case for open banking data. Using an account information API, Authologic is able to provide access for its customers to their open banking data to verify identity and securely transfer their account history. As a result, businesses have a new way to check the identity of clients online in a far better way than through penny transfers. 

Use cases for open banking have even extended past fintech. European Bartender School has leveraged open banking data to offer BNPL-style financing on their courses. The school is able to use an API to access banking data and assess creditworthiness of applicants quickly and accurately. Using the enriched data from open banking, they are able to take advantage of open banking and get a full picture of applicants’ financial health. 

Open banking in full swing and a long way to sail

There is huge untapped potential value that could be created by increased use of financial data. Not only will economies that adopt open data ecosystems see GDP growth of up to 5 percent by 2030, but all participants of such an ecosystem would reap the benefits. And, in Europe, 17% of this new value will be captured by individual participants through improved as well as increased access to and amount of products and services. 

Two of the many industries yet to have reaped the benefits of open banking are iGaming and crypto companies. iGaming companies have the opportunity to improve their services and match customer preferences when it comes to payment options. For crypto companies, open banking can allow for a frictionless customer experience through seamless account verification and transferring of funds. In both use cases, open banking can also allow the companies to fight fraud by directly accessing and analysing transaction history.

What’s more, open banking use cases have the chance to keep going beyond financial services. From retail to insurance, companies can take advantage of open banking to improve their businesses. In a nutshell, open banking technology holds the key for increased revenue, reduced operational costs, and higher customer satisfaction. 

Changes we need for wider open banking adoption

The value of open banking financial data today is capped at just 10% of its potential. Wider adoption of open banking calls for significant developments that help increase access to financial data. 

Open banking data needs to be free. Although financial data access is free under PSD2, it does not end up being free at all for the final customer. This price barrier limits innovation as not nearly as many developers and businesses are given the opportunity to build new services and products based on financial data. 

Data sharing mechanisms could benefit from standardisation. Although PSD2 specifies that standardised APIs must be used to access financial data related to payments, data privacy regulations restrict other forms of this data to be accessed. With APIs as the most secure way to access financial data, their standardisation is the way to go to capture the full potential. 

There are more types of data that could be shared. PSD2 is restricted to just 4 data fields. Having a limited amount of data limits what can be created. Either banks could share more data or the data types could be used more efficiently using premium value-added data insights that maximise what is already offered. 

Open banking has gained a lot of ground in the short 3 years since its inception. But, with its value capped at a mere 10% of what it could be, it’s high time to work towards the necessary conditions needed to reach the full capacity of what open banking can offer. 

About the author

Rolands Mesters is the CEO and co-founder of Nordigen, the only freemium open banking data platform in Europe. Rolands is a sales and growth hacker who is passionate about fintech and alternative lending. Nordigen began as a data analytics company that builds solutions for categorising and analysing bank account data. In December 2020, the company launched Europe’s first free open banking account data API. Rolands has been featured in the Forbes Latvia 30 Under 30 list as well as being featured in TechCrunch, Sifted, and the Financial Times. Rolands regularly shares fintech insights and analysis on open banking at top international fintech events, and is considered one of the foremost experts on open banking worldwide.

Author: Rolands Mesters

#OpenBanking #Digitalisation #Innovation #IDVerification #FinTech #OpenData #Crypto #Standardisation #APIs #DataPrivacy #PSD2

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