RESEARCH REPORT
Ready to catch the Open Banking wave?
5-MINUTE READ
June 21, 2021
In brief
- The global Open Banking waters are relatively calm right now, but beyond the horizon, a wave of change is building.
- Banks will soon need to choose between catching the wave or riding it out and hoping for minimal damage—with up to $416 billion in revenue at stake.
- Tomorrow’s Open Banking leaders will prioritize data custodianship, analytics mastery, agile partnerships and trusted security.
To date, Open Banking has not created a tsunami of disruption. In some markets, banks have become complacent about the threat it poses to traditional business models.
But a wave of change is coming as Open Banking initiatives and regulations mature and enable the creation of the open data economy. When the wave arrives, change will be exponential. The super-app will be here sooner than you think.
One early indication is the rapid growth of third-party providers (TPPs) in Europe, which is at the forefront of the Open Banking paradigm. There, TPPs have grown from around 100 to more than 450 in under two years—and their focus has expanded from payments and transactional retail banking to encompass the entire financial value chain.
Our analysis, built on data sets covering 20 of the largest economies responsible for more than 75% of global GDP worldwide, suggests that as much as $416 billion in revenue will be at stake as the open data wave arrives. This revenue is likely to be captured or defended by agile players who recognize the opportunity early.
With such high stakes, fintechs, neobanks, bigtechs and other non-traditional players are all preparing to take on banking incumbents for a stake in this new market. But despite this flurry of activity, many banks around the world have been slow to respond. The belief that a wait-and-see approach is safest may be costly. Banks that aren't yet considering their place in the open data economy risk yielding the market to more agile competitors. After all, one of the key attributes of the open data economy is a blurring of the lines between industries.
Different markets, different moments
The Open Banking wave will break at different times around the world—and look different in each instance. To understand the regional nuances, we measured four dimensions of market readiness in Europe, North America, Latin America and Asia-Pacific: customer readiness, regulatory approach, technology and competition.
Three kinds of markets emerged from this analysis:
- Consumer-enabled markets like China are defined by digitally savvy consumers ready to embrace new-age financial services and products.
- Regulator-directed markets like the European Union and Australia show lower relative consumer readiness despite regulatory focus on Open Banking.
- Market-led markets like the US are seeing incumbent banks and other financial services organizations drive Open Banking in the absence of market infrastructure or regulatory mandate.
Core open data capabilities
We anticipate that most banks will eventually master four capabilities to become significant players in the age of the super-app.
Find more detail on the opportunities created by the Open Banking wave—and how to seize them—in our full report.
As the open data wave arrives, as much as $416 billion in revenue will be at stake.
Frequently asked questions
Open Banking is a new paradigm designed to give customers more diverse and compelling value propositions. By enabling the exchange of data between banks, other financial services players and non-banking vendors—with customers’ permission—Open Banking results in API-linked ecosystems that can create and market bundled offerings difficult for independent providers to match.
The open data economy is a marketplace in which most of the barriers that constrain the availability and flow of customer data have been eliminated. Key features are the blurring of industry boundaries, mastery of data management and analytics and a proliferation of partnerships in which data is shared to develop and sell more relevant offerings.
Open Banking is driven by several factors—at the moment, regulatory change is the most powerful. Customer demand is another, although it’s still being suppressed in many markets by ignorance of the potential benefits of Open Banking, by a lack of familiarity with or wariness of technology and by concerns about data privacy. Europe and China are pioneers of Open Banking, while other markets—including the US—are moving more slowly, if steadily, towards Open Banking.
A super-app is a platform or ecosystem of apps that does everything—or just about. In most cases it is a mass marketplace of offerings enabled by digital technology, an abundance of data and a vast array of third-party integrations. WeChat and Alipay are early examples, but PayPal and Klarna are also taking steps to building ecosystems that offer features like mobile payments, shopping, investing, saving, budgeting and crypto capabilities.