# Delivering on the potential of open finance
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-01-21
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: The Future of Open Banking: Revolution or Risk?
Meta Description: Discover how open banking is transforming the financial services industry, empowering consumers and driving innovation. Learn about the benefits, challenges,
URL: https://financedigest.com/delivering-on-the-potential-of-open-financehtml

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_By_ **_David Ritter,_** _Financial Services Strategist at CI&T_

Not long ago, “open banking” seemed like something unimaginable. As new digital technologies increased, the level of cyber risk also evolved. So [financial data](https://www.financedigest.com/data-fake-will-be-the-new-real-in-financial-services-in-2023.html "Data: Fake will be the new real in financial services in 2023"), always considered highly sensitive, became even more top secret – and certainly not for sharing.

But things have changed. With the ever-growing rise of fintech, bank apps, online trading platforms and digital currencies, consumers have realised that there is great benefit in [securely sharing information](https://www.financedigest.com/privacy-vs-security-is-the-cybersecurity-information-sharing-act-beneficial.html "PRIVACY VS SECURITY: IS THE CYBERSECURITY INFORMATION SHARING ACT BENEFICIAL?") with trusted third parties. It can empower us to deal with our finances more readily, make our money work harder, and support various new [financial services](https://www.financedigest.com/4-ways-high-performance-analytics-powers-financial-services.html "4 ways high-performance analytics powers financial services") – to the benefit of our whole community.

Despite how promising this revolution is, [open banking](https://www.financedigest.com/barclays-private-bank-opens-new-office-in-verbier-switzerland-for-2022-23-ski-season.html "Barclays Private Bank opens new office in Verbier, Switzerland for 2022/23 Ski Season") is at great risk of slowing down. Now, nearly four years on from its implementation, it’s time to ask whether or not the benefits of this are really understood, and how the [financial services](https://www.financedigest.com/the-future-of-financial-services-tech-evolution-not-revolution.html "The future of financial services: Tech evolution not revolution ") industry can mitigate against any barriers to adoption.

**Planting the [open banking](https://www.financedigest.com/asia-shares-bank-on-eventual-china-opening-oil-gains.html "Asia shares bank on eventual China opening; oil gains") seed**

The pandemic has placed enormous pressure on revenue for [financial institutions](https://www.financedigest.com/3-ways-financial-institutionscan-leverage-live-engagement-on-social-media.html "3 ways financial institutions can leverage Live Engagement on social media"). But even before Covid, the traditional banking sector was in trouble. The challenges and limitations of legacy systems were exposed by the [rise of alternative financial](https://www.financedigest.com/make-way-for-the-rise-of-the-finance-super-apps-consolidation-of-financial-digitisation-tools-platforms.html "Make way for the rise of the Finance Super Apps – Consolidation of Financial Digitisation Tools & Platforms") providers, including digital-first challenger banks. Against more nimble counterparts, bigger banks found themselves unable to provide the data capabilities and agility required to make open [banking a success](https://www.financedigest.com/banking-on-snow-automation-platform-for-success.html "Banking on Snow Automation Platform for Success").

However, the industry can be fast to adapt when it wants to be, as highlighted by the speed with which it has [upgraded and modernised systems](https://www.financedigest.com/sweden-to-upgrade-berzelius-supercomputer-with-nvidia-ai-systems.html "Sweden to upgrade Berzelius supercomputer with Nvidia AI systems"). Embedded [finance — wherein banks](https://www.financedigest.com/why-finance-professionals-must-bank-on-a-journey-to-the-cloud.html "Why finance professionals must bank on a journey to the cloud") allow their platforms to be used within third-party experiences — enables institutions to tap into new and bigger markets, and to open up new sources of revenue. For example, by 2025, [Gartner predicts](https://www.gartner.com/en/documents/3990738/tech-providers-2025-banking-as-a-service-will-drive-succ) that half of Tier 1 banks will launch a Banking-as-a-Service offering.

Aside from new capabilities, equally as important about open banking is its ability to improve existing services and processes, lower costs and [deliver enhanced customer](https://www.financedigest.com/financial-companies-delivering-better-value-for-customers-in-loyalty-programmes-compared-to-other-sectors.html "Financial companies delivering better value for customers in loyalty programmes compared to other sectors") experience that boosts retention and revenue. Access to customers’ full [financial picture enables banks](https://www.financedigest.com/why-banks-could-stand-to-learn-a-thing-or-two-about-financial-inclusion-from-fintechs.html "Why banks could stand to learn a thing or two about financial inclusion from fintechs") to significantly simplify the process of underwriting loans, make operations more efficient across the board, and deliver more targeted and more cost-effective marketing.

**Open banking for everyone**

Previously, legacy technology was the roadblock to achieving open banking’s benefits. But while the [industry has made admirable advances in the adoption of new platforms and technologies](https://www.financedigest.com/the-benefits-of-adopting-cloud-technology-in-the-finance-industry.html "The benefits of adopting cloud technology in the finance industry"), there are still significant barriers to widespread open banking implementation.

Notably, new [digital systems only provide the foundation for open banking](https://www.financedigest.com/igtb-launch-digital-transaction-banking-available-as-saas.html "iGTB launch Digital Transaction Banking available as SaaS"). To share data safely and dependably between parties, the [financial services](https://www.financedigest.com/how-financial-services-companies-can-successfully-utilise-low-code-and-no-code-technologies.html "How financial services companies can successfully utilise low-code and no-code technologies") industry also needs robust data-sharing standards and protocols – as well as buy-in from customers.

This has been particularly challenging due to differing regulations across jurisdictions, which have yielded a patchwork of standards across the world. PSD2 may have laid the groundwork for the open banking revolution in Europe, but in the United States, such standards don’t yet even exist. Even in Europe, PSD2 only opens up certain products and transactions; mortgages – for most people, their [biggest and most important financial product](https://www.financedigest.com/exclusive-volvo-readies-ev-blitz-in-biggest-product-revamp-under-geely.html "Exclusive: Volvo readies EV blitz in biggest product revamp under Geely") – are currently out of the regulations’ scope.

Significant technical obstacles also remain. Data is most securely shared in open [finance](https://www.financedigest.com/theres-nothing-artificial-about-the-role-of-ai-and-data-in-the-finance-industry.html "There’s nothing artificial about the role of AI and data in the finance industry ") applications via APIs that pass data using encrypted tokens, but we’re still some way from standardising tokenisation protocols to remove vulnerabilities that hackers could exploit.

Standards that consumers will use to authorise access to their data, including what is shared and with whom, are also still developing. As these standards evolve, some may be excluded from next-generation [financial services](https://www.financedigest.com/how-financial-services-are-overhauling-security-to-defend-against-spoofing-scams.html "How financial services are overhauling security to defend against spoofing scams") since some are willing and able to share their information and others are not. Indeed, those with perhaps the most to gain from open banking – unbanked or under-banked populations who may lack a formal [credit history or previous banking relationships – may be least able to share](https://www.financedigest.com/bank-shares-rise-after-credit-suisse-rescue-eases-crisis.html "Bank shares rise after Credit Suisse rescue eases crisis") data.

Lack of education on and around [open banking is one of the biggest challenges](https://www.financedigest.com/open-data-represents-the-biggest-challenge-to-banks-in-a-generation.html "Open data represents the biggest challenge to banks in a generation") banks face right now. To see success and growth in use, banks need to [sell the advantages of data sharing](https://www.financedigest.com/kuehne-raises-lufthansa-stake-to-17-5-as-germany-sells-remaining-shares.html "Kuehne raises Lufthansa stake to 17.5% as Germany sells remaining shares"), conveying clearly how these outweigh the risks. A clear demonstration of how the [banks are protecting customer](https://www.financedigest.com/christmas-debt-hangovers-how-banks-can-help-customers.html "CHRISTMAS DEBT HANGOVERS: HOW BANKS CAN HELP CUSTOMERS") data is crucial, particularly for those unbanked and under-banked. Fintech’s have already shown that it’s possible to [offer basic banking](https://www.financedigest.com/first-abu-dhabi-bank-could-renew-35-billion-offer-for-stanchart-bloomberg-news.html "First Abu Dhabi Bank could renew  billion offer for StanChart -Bloomberg News") services to those without established credit or banking relationships. Now, the traditional [industry must](https://www.financedigest.com/why-the-industry-must-simplify-cybersecurity.html "WHY THE INDUSTRY MUST SIMPLIFY CYBERSECURITY") follow suit.

When it comes to regulation, progress is being made. For example, the Financial Data Exchange (FDX), the body [working on open banking](https://www.financedigest.com/working-with-banks-essential-tips-for-fintechstartups.html "Working with banks – essential tips for fintechstartups") protocols in the US and Canada, is working on an API project which encompasses nearly 600 data points that customers will be able to share with third parties. These standards are critical to the development of open banking, but ultimately, it’s the banks themselves that bear the real [responsibility for securing their customers’ data](https://www.financedigest.com/assurance-v-security-reassessing-responsibility-for-data-assurance.html "Assurance v Security: Reassessing Responsibility for Data Assurance"). Indeed, consumers [continue to trust their bank with their data to a far greater extent](https://www.financedigest.com/to-what-extent-is-amls-continuing-globalisation-enough.html "TO WHAT EXTENT IS AML’S CONTINUING GLOBALISATION ENOUGH?") than big technology companies or fintech’s.

Soon enough, we’ll be asking ourselves how we, at any point, lived without [open finance](https://www.financedigest.com/the-future-of-open-finance.html "The Future of Open Finance") to begin with as we witness data-sharing build momentum. As the industry works to overcome barriers to adoption, its potential to deliver huge benefits for us all will become even clearer.


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