Criticism of open banking is rising, writes Rolands Mesters, CEO and co-founder of Nordigen. But that misses some of the longer-term growth trends that are underway since its inception less than five years ago, not least uptake by millions of users.
This year, open banking has received harsh criticism from Monzo's Tom Blomfield, Tide's Oliver Prill, and most recently Starling's Anne Boden. Concerns have centred around the “slow” uptake of open banking and its lack of impact on innovation, with some going as far as to call it an outright failure.
The truth is, uptake has not been slow at all. Since its inception just 3 years ago, open banking has reached 4 million users since its launch. In comparison, Monzo, which launched in 2015, took 5 years to hit 4 million customers while Klarna took 6 years. And to date, open banking has acquired more users than Starling Bank and Tide combined.
The market is continuously developing – according to Allied Market Research, the open banking market is growing at 24.4 per cent annually and is expected to reach $43.15bn by 2026. Globally, open banking usage doubled from 2018 to 2021, and Zopa’s Tim Waterman believes open banking could reach 40 million users in just the UK by 2025. This growth has been accelerated by the natural shift to digital and the necessary modernisation of the financial sector.
API usage of open banking is already at a massive scale. In 2020, open banking enabled almost 6 billion AIS API calls in the UK alone. In contrast, during that same year, Experian supported 3.5 billion credit decisions globally. Even considering the traditional technology adoption cycle (innovators and early adopters first, the general population later), open banking is making great strides.
Criticism of the technology is piling up, but on balance, open banking is growing quickly even by tech startup standards. In addition to creating a more integrated payment market and protecting customer data, open banking has also started to level the playing field by increasing financial inclusion and bringing fintech startups onto a global stage.
Although arguably in its relative infancy, open banking is groundbreaking, international, and growing quickly. It is fundamentally redefining the finance industry, the way customers interact with banking and is changing our relationships with our finances.
Open banking is undoubtedly creating opportunities for fintech services and for developers to expand and innovate. It is making banking more accessible, streamlining financial processes, and has introduced a level of standardisation in the industry as a whole.
It has been successful in curtailing less sustainable data sharing practices, such as screen scraping, making the process of data sharing safer and more secure for consumers. Open banking is the next step in innovation of the finance industry, bringing on new opportunities and growth.
The financial services landscape is undergoing a radical shift, and open banking is a major part of that. In the correct conditions, with data transactions remaining fluid through standardized APIs and the data cost being set too low, open banking is an ideal playground for developers to build innovative applications and to solve real problems.
Jumping on the open banking trend will benefit banks to establish an important place in the future of financial services, by setting them up to be an integral part of the new system.
Cost is also a topic of debate, with some industry executives citing it as a barrier for entry. The view of the practice being costly stems from the following truths: account aggregators charge sky-high fees for access to banking data, expensive AISP licences are required by fintechs for developer operations in the industry, and data acquired through the process is too raw and unstructured, requiring additional data processing costs.
This, however, does not need to be the case for open banking. Access to open source and freemium technologies is allowing developers to decrease the costs of exploring open banking, which is critical for its widespread adoption.
Data is protected
Financial data is one of the most valuable resources in the modern world and it should be up to the bank customers themselves who they choose to share it with. Banks should not be gatekeepers in this scenario but instead, join and integrate themselves as vital components of the newly established systems. This move will give clients justified autonomy over their data, granting them a say in how their information is shared and with whom.
Sharing information has added benefits, of course, such as centralising customers’ account data, faster and accurate credit scoring, KYC identity verification and more. However, it is still up to the customer which of these services, if any, they wish to engage in, which is their fundamental right.
Open banking is helping to evolve the industry by providing more opportunities to financial service providers, offering more autonomy to end users, and creating a foundation for future innovations. Despite the negative sentiment coming from banks, we should instead recognise and embrace the success so far and continue to propel the technology forward.