Open Banking growth accelerating around the world – except US

Posted: 25th May 2022

New data from the UK’s Open Banking Implementation Entity (OBIE) shows products in-market and user numbers accelerating.

Open Banking to launch mobile banking app

Open Banking growth accelerating

Meanwhile, major European markets such as France and Germany are moving from strategy to implementation, with the Middle East and South-East Asia making strides to Open Banking (OB) ecosystems.

As it did back when we switched to chip cards, the US seems slow to implement a federal Open Banking strategy, raising questions about the future health of the country’s retail banking sector.

Open banking regulations require banks to expose their systems and data to third parties with customer consent.

By using open application programming interfaces (APIs), those third parties can use that data to build products and services for the financial institution’s customers.

Open APIs lower the barriers to entry for startups, leading to increased competition and innovation.

More than any other measure, open banking can help level the playing field between traditional banks and financial services firms on the one hand, and the FinTech sector on the other.

In the UK, OBIE recently announced that the number of active users of OB has exceeded 5 million, with 1 million users added in just four months and nearly 625,000 more Open Banking payments in January 2022 compared with December 2021.

While it took 10 months to increase the number of OB users in the UK from 1 million to 2 million in 2020, it took just four months to grow the number of users from 4 million to more than 5 million today.

The UK government itself has become an open banking provider, with state tax collector HMRC incorporating a ‘Pay by bank‘ option into its annual self-assessment process. OBIE said this took the total number of OB payments to 3.86 million in January 2022, up nearly 20 percent in a month compared to December last year.

In a comment to Payments Cards & Mobile, Karl MacGregor, CEO of A2A specialist Vyne, said: “Payments made through open banking are more cost-effective, transparent, and seamless, benefitting both consumers and merchants. The figures released today by the OBIE show the remarkable progress made by the industry over the past four years to make open banking a success in the UK.”

Europe: getting set

A recent survey by Mastercard ranked the Nordics as Europe’s best performing region in OB thanks to their sophisticated technology stacks and advanced payment services (think Sweden’s SWISH wallet, now used by a majority of the population, or Norway’s BankID).

The Mastercard study put the UK in second position, with major markets such as France and Germany in a third tier.

France and Germany have both launched Open Banking consortia such as Germany’s Berlin Group, and these consortia have defined open Application Programming Interfaces (APIs).

“There’s strong evidence of Europe’s banks gearing up for the roll-out of Open Banking.”

Fast forward a couple of years, and there’s strong evidence of companies and banks gearing up for the roll-out of OB products. In Germany, banks such as Commerzbank, Sparkasse, Volks and Raiffeisenbank and others all plan to launch Open Banking options, while French retailers such as Auchan, Total and Carrefour have either launched OB products or are in the advanced stages of planning.

The Middle East and Asia – making moves…

Australia launched its OB legislation in 2020. There are already 16 banks representing 85 percent of Australia’s household deposits with active open APIs.

Thirteen trusted third parties (TPPs) have been licensed to offer Open Banking products, including FinTechs, accounting platforms, and comparison providers.

Meanwhile, one FinTech has announced a partnership with a major bank to receive consumers’ financial data from other banks’ customers, paving the way for faster data-sharing and better transaction security.

Similar moves have been made by Singapore’s Monetary Authority (MAS), and it will come as no surprise to learn that fintech in both markets is booming. At the time of writing, there were more than 1,000 FinTechs registered in Singapore, a country with a population of just over 6 million.

Where’s Uncle Sam?

“US banks and regulators must understand the risks of not doing more to develop Open Banking.”

While there’s no doubting the US’s strengths in terms of investment capital, strong infrastructure and FinTech creativity, one wonders why the world’s largest economy hasn’t done more to foster a full OB environment.

Let’s hope that the US banking industry and regulators understand the systemic risks of not adopting a more proactive stance on Open Banking: for all that America can be proud of its economic creativity, hobbling its long-term future by not enabling more competition is not the best plan for success.

Categories: Banking
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