From Open Banking to Open Finance, the movement is accelerating

According to the 2022 Sopra Steria and Forrester conducted research on the future of digital banking, the transformation of the banking landscape towards a more open ecosystem is accelerating.

August 2, 2023

According to the 2022 Sopra Steria and Forrester conducted research on the future of digital banking, the transformation of the banking landscape towards a more open ecosystem is accelerating (link). Globally; 67% of the banks will increase their investment by more than 6% in Open Banking Compliance, and in Europe this number is even higher; 68%. For traditional players, the challenge now is to develop new collaborative business models, effectively integrating services offered by third-party providers and distributing their products through external platforms.

With PSD2, the intention of the European legislator was to push banking actors to engage in the era of Open Banking and innovate at the heart of a more open economy. While the movement has long remained timid, the transformation of the sector seems to be accelerating, according to observations by Sopra Banking Software. “With PSD2, banking actors were required to share information about their customers’ payment accounts with third-party actors, provided that customers authorize it, using secure information exchange practices through the use of APIs,” explains Jan Willem Stoffer, Business Development Benelux & Nordics at Sopra Banking Software. After a period during which everyone focused primarily on compliance aspects, actors now better apprehend the possibilities related to these developments in a competitive and innovative approach. Today, we like to envision a world where banking actors interconnect and collaborate more easily with third-party actors to exchange data and seize new opportunities.

Expected regulatory framework evolutions

The banking industry, and more broadly the financial industry, is embracing the new possibilities related to data exchange. “76% of banks declare being driven towards collaborative business approaches induced by the opening of banking services, the multiplication of open APIs, and the increasing customer expectations in this regard,” explains the spokesperson. Currently, there are around 600 registered Third-Party Providers (TTPs) in Europe and it is expected to have 64 million Open Banking service users in Europe by 2024, and 130 million Open Banking service users globally. The number of APIs exposed by banks continues to grow.

According to Sopra Banking Software, while the movement is already well underway, it is expected to intensify rapidly. The regulatory framework should evolve (with PSD3 or other initiatives related to financial data access), pushing actors to go further.

Currently, regulation only covers account information services (AIS) which includes the exchange of customer payment data with a licensed third party and payment initiation services (PIS) which allows a licensed third party to initiate a transaction on behalf of the customer. Both actions require the explicit consent of the customer who is considered the data owner. However, the direction is clear. Future regulations aim to give users control over their own information and facilitate the exchange of information to support innovation.

From Open Banking to Open Finance

As highlighted in a recent article  by Sopra Banking, the scope gradually extends to finance as a whole with the European Commission entering dialogue period to approve new proposals introducing PSD3, Payment Services Regulation (PSR) and Financial Data Access (FIDA). Jan Willem Stoffer explains that with the introduction of FIDA we would enter the new age of Open Finance where all financial customer data stored at both banking and non-banking financial institutions would need to be accessible to customers by building on the same principles of secure data exchange we know from PSD2 today. If we look further, we can even imagine an open data economy where bridges are created between the finance domain and other sectors such as commerce, health, telecommunications, travel, etc. This opens possibilities for new customer journeys and new experiences.

Banks are preparing

According to studies conducted by Sopra Banking Software and Sopra Steria, 20% of banks declare themselves ready for Open Finance, while 60% say they are investing significantly to prepare for this new era. “In this perspective, banking actors, in particular, need to consider new models.

On the one hand there is growing opportunity for banks to use API’s to distribute their products externally through platforms or marketplaces to expand their footprint and reach new customers”, comments Jan Willem Stoffer, “On the other hand, banks can think about becoming a marketplace themselves by integrating products and services offered by third parties into their own offerings”. Deloitte’s 2022 research confirmed that leading banks are transforming into multi-service platforms, expanding into areas like mobility, commerce, healthcare and e-government. Two examples of banks in the EU that are actively embedding third party products and services in their offerings are Revolut and KBC bank.

A technical and strategic approach

Today, Sopra Banking Software supports banking actors eager to embrace this dynamic by facilitating the exposure of their APIs to the outside world from their banking solutions ecosystem or by supporting the integration of external applications or services with their platform. “Beyond the technical challenges, this transformation represents a strategic issue, inviting banking actors to rethink their positioning by considering what customers expect from them in terms of services and experiences,” explains the Sopra Banking Software expert. It is also about considering the elements for which they provide real added value to better showcase them externally.



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