2021 Digital Banking Report: Open Banking Thoughts
The September 2021 Digital Banking Report focuses on open banking and embedded finance. Open banking refers to the process by which banks and other financial institutions grant third-party financial service providers access to their data to develop new products and services. Embedded finance allows non-financial companies to offer their customers financial services.
Open banking and embedded finance go hand-in-hand to deliver innovative solutions to customers, and the Digital Banking Report explores some of the key industry trends to watch going forward. The report found that financial institutions with strong open banking strategies powered by open APIs are best positioned to foster customer relationships and discover new sources of revenue.
Here are some key points noted by the report:
1. Open Banking Strategies Are Gaining Momentum
While open banking is still a relatively new concept, it’s quickly gaining traction among financial institutions of all sizes. 24% of respondents in the report’s research said they already have an open banking strategy, 11% plan to implement open banking within a year, and 10% hope to within two years. Of the remaining respondents, the majority (31%) were considering open banking options, while just 24% said they do not currently have plans for open banking.
There are several great reasons for adopting an open banking strategy, including expanded service offerings and third-party collaboration, so it’s unsurprising that most respondents either had an open banking strategy already in place or were considering implementing one in the near future.
Following the pandemic, the flexibility offered by open banking will be more critical than ever. If there is one trend that’s been revealed over the past couple of years, it’s that consumers appreciate options—the more, the better—and open banking makes it possible for them to access financial services through third-party means. It comes as welcome news that more and more banks realize the importance of having an open banking strategy.
2. Automation And Expanded Service Offerings Drive Open Banking
The Digital Banking Report found that respondents were primarily concerned with two things about open banking: automation and expanded service offerings. When asked to rank priorities for an open banking implementation, most respondents listed improving workflows and automating processes as their number one priority. This was followed by wanting the flexibility to work with third parties to expand customer service offerings.
Interestingly, developing tech solutions in-house ranked at the bottom of the list, indicating a greater focus on collaboration rather than siloed development. Most financial institutions emphasize the importance of working with outside organizations to build and deliver solutions to those they serve, which is ultimately what open banking is all about.
3. Maximum Open Banking Impact Expected Within The Next Five Years
85% of financial institutions believe that the most significant impact of open banking will occur very soon—in the next five years, to be exact. Here is a breakdown of their responses when asked about the period in which they foresee open banking transforming the financial services industry the most:
- 72% said in the next 2-5 years
- 14% said in the next 5-10 years
- 13% said in the next 12 months
- 1% said beyond the next 10 years
If their predictions are correct, we should see the peak of open banking at some point within the next decade, meaning that the time to invest in open banking solutions is now. The Open Banking Revolution is here and is likely to gather speed in the coming years, so businesses would be wise to get on the train before it’s too late.
4. Infrastructure And Outsourcing Lead Open Banking Strategies
Based on the findings of the report, it’s clear that infrastructure and outsourcing lead the way in terms of the investments financial institutions plan to make to support their open banking strategies. Nearly three-fourths of respondents listed infrastructure as a priority, and 56% said they planned to outsource for open banking.
Of course, many facets of open banking warrant consideration, but outsourcing is one of the best ways to manage your strategies and systems. Institutions looking to get involved with open banking but lack the resources to handle everything internally consider outsourcing. Teksetra outsourcing can be helpful to businesses in need of installation services, IT support, repair and maintenance, and more.
5. Consumers Expected To Benefit The Most From Open Banking
Open banking can prove beneficial to everyone involved, but findings from the Digital Banking Report suggest that consumers may reap the greatest rewards. 59% of financial institutions believe that consumers will ultimately benefit most from open banking. 17% believe that big tech and technology firms have the most to gain, while 14% cited fintech organizations, and 10% stated that traditional financial institutions would benefit most.
There is certainly money to be made for all parties in open banking, and financial institutions can benefit greatly from these services’ innovation and collaborative opportunities. However, with most respondents in agreement that open banking is ultimately a consumer’s game, businesses should be on the lookout for any way to improve the customer experience, even as they expand their offerings and work to provide better solutions in the future. Innovation will play a critical role in the future of open banking, but that innovation shouldn’t come at the cost of customer satisfaction.
Final Thoughts: Rethinking Revenue Models
The report reiterates the importance of leveraging APIs and open banking to expand product offerings and improve the customer experience. Today, more customers are demanding better options for financial services; they no longer wish to be confined by traditional banking solutions. Institutions can respond to these needs in several ways, and open banking provides an excellent opportunity for businesses to diversify their offerings and look for new revenue streams.
Having an open banking strategy can ensure an organization’s success in implementing and delivering open banking solutions. They might offer banking as a platform, which refers to the aggregation of services and or capabilities beyond the limited portfolio currently offered, or banking as a service (BaaS), which allows fintechs and other third parties to connect with financial institutions via APIs to build new products and services. Either way, banks will be pressed to seek new, improved revenue models if they are to remain competitive going forward.
Teksetra Is Here To Help!
Teksetra recognizes the importance of open banking and the need for financial institutions to find better solutions to address consumer needs. As noted by a 2018 Ovum report, 82% of banks in the Americas are actively pursuing open banking strategies, so it’s clear that open banking is the way to go.
Teksetra offers end-to-end technology solutions that can aid in the process of open banking implementation and management. With Teksetra’s nationwide outsourcing program you can access IT support, project services, repair and maintenance plans, and third-party logistics from a single, trusted partner. With over 45 years of industry expertise, Teksetra’s financial solutions are suited to understand your business. Financial institutions can reduce downtime, augment their teams, consolidate vendors, and more through this platform.
Reach out today to learn more about our outsourcing and financial services and how we can help address your open banking needs!
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