# Moving Past Regulation: the future of open banking Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2020-11-25 Category: BANKING Category URL: https://financedigest.com/category/banking Meta Title: Unlocking the Future: The Impact of Open Banking on Meta Description: Discover how API technology is revolutionising financial services, enabling banks to offer new, data-driven services to customers. Learn how banks can leverage URL: https://financedigest.com/moving-past-regulation-the-future-of-open-bankinghtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/untitled-design-2020-11-25t181837-1736838707150-compressed.jpg) _By **Young Pham,** Chief Strategy Officer at_ [_CI&T_](https://us.ciandt.com/) Banks stand on the precipice of a new era in financial services. Thanks to Application Programming Interface (API) technology, financial data can now be shared between outside firms to create new services for consumers. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. [Banks will no longer simply be just a place to deposit and withdraw your cash](https://www.financedigest.com/european-banks-cash-in-on-rising-rates-as-clouds-gather.html "European banks cash in on rising rates as clouds gather"), but a one-stop-shop for a range of data-sensitive services. The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of [banks modernising how they handled their customer data](https://www.financedigest.com/why-now-is-the-time-for-banks-to-use-their-data-to-support-customers.html "Why now is the time for banks to use their data to support customers"). However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from [fintech challengers](https://www.financedigest.com/how-to-overcome-the-current-challenges-facing-your-fintech-business.html "How to overcome the current challenges facing your fintech business") and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a [way to grasp the unique](https://www.financedigest.com/5-unique-ways-to-go-greener-in-the-office.html "5 unique ways to go greener in the office") opportunities that banks have to reposition themselves as the most trusted resource for their customers. **More than a bank** It is hard to overestimate the breadth of possibilities arising from [open banking](https://www.financedigest.com/why-open-banking-is-safe.html "WHY OPEN BANKING IS SAFE?"), should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, [banks have a unique perspective into their customers’](https://www.financedigest.com/lost-in-translation-why-banks-must-learn-the-language-of-their-customers.html "Lost in Translation: Why Banks Must Learn the Language of their Customers") behaviours, needs and desires. Spending habits, income streams and [risk appetites](https://www.financedigest.com/u-s-dollar-climbs-to-two-year-peak-as-risk-appetite-tumbles-yuan-drops.html "U.S. dollar climbs to two-year peak as risk appetite tumbles; yuan drops") are just a few examples of the data that no other institution can tap in to. There is certainly appetite to expand offerings. In our [recent study](https://www.financedigest.com/silicon-capacitors-market-to-garner-us-3100-million-by-2027-at-8-cagr-recent-study-by-tmr.html "Silicon Capacitors Market to Garner US$ 3,100 million by 2027 at 8% CAGR – Recent study by TMR") of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses. ![Young Pham](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/young-headshot-1-450x450-1736838707463-compressed.png) Young Pham More banks should consider how [open](https://www.financedigest.com/the-open-banking-revolution-enabling-accessible-and-inclusive-finance.html "The open banking revolution – enabling accessible and inclusive finance") banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each [bank and their particular customer](https://www.financedigest.com/banking-from-anywhere-embracing-technology-to-exceed-customer-expectations.html "Banking from anywhere: embracing technology to exceed customer expectations") audience. For instance, [banks could offer everyday services](https://www.financedigest.com/baas-what-you-need-to-know-about-the-rise-of-banking-as-a-service.html "BaaS: What you need to know about the rise of Banking as a Service") for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and [investment management](https://www.financedigest.com/mg-appoints-former-head-of-axa-investment-managers-andrea-rossi-as-new-ceo.html "M&G appoints former head of AXA Investment Managers Andrea Rossi as new CEO"). The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and [cloud services](https://www.financedigest.com/uk-to-examine-cloud-services-dominated-by-amazon-microsoft-and-google.html "UK to examine cloud services dominated by Amazon, Microsoft and Google"). They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. [Banks are in prime position to follow](https://www.financedigest.com/uk-watchdog-contacts-banks-following-huge-withdrawal-of-mortgage-deals-ft.html "UK watchdog contacts banks following huge withdrawal of mortgage deals -FT") the example of these top tier tech companies thanks to their monopoly on key financial data. **The role of challengers** The business model described above is already being adopted by numerous [challenger banks](https://www.financedigest.com/the-rise-of-challenger-banks.html "challenger banks"). These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already [provide a range of non-banking services to their customers](https://www.financedigest.com/verasity-joins-the-brightcove-marketplace-to-provide-customers-with-proprietary-ad-tech-technology.html "Verasity Joins the Brightcove Marketplace to Provide Customers With Proprietary Ad-Tech Technology"). [Revolut](https://www.revolut.com/), for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription. These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always [flagged the gaps in the market](https://www.financedigest.com/puma-confirms-full-year-outlook-flags-market-volatility.html "Puma confirms full-year outlook, flags market volatility") that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example. While challenger banks may have a first-mover [advantage for these services](https://www.financedigest.com/integrated-finance-the-advantages-of-using-financial-infrastructure-as-a-service.html "Integrated Finance: the advantages of using financial-infrastructure-as-a-service"), the incumbents have two key advantages: capital and credibility. Firstly, the [top banks](https://www.financedigest.com/metro-bank-former-top-bosses-fined-over-reporting-error.html "Metro Bank, former top bosses fined over reporting error") have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic. Secondly, even though challenger banks are perceived as more convenient and are less vilified than [traditional](https://www.financedigest.com/traditional-banks-need-an-overhaul.html "Traditional banks need an overhaul") banks, the public still trusts the latter. Many of these large banks can point to their extended histories and [long-term investment](https://www.financedigest.com/technical-textiles-market-2021-2031-potential-growth-attractive-valuation-make-it-is-a-long-term-investment.html "Technical Textiles Market (2021–2031)| Potential growth, attractive valuation make it is a long-term investment") success – accolades young challengers simply cannot match. In short, [people don’t have to like their bank](https://www.financedigest.com/people-need-people-humanising-the-digital-banking-experience.html "People need People – Humanising the digital banking experience") to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the [open banking business model](https://www.financedigest.com/apis-open-banking-and-new-business-models.html "APIs, Open Banking and New Business Models") in the long term, despite being slower to adopt and adapt. **The** [next steps](https://www.financedigest.com/eu-leaders-to-discuss-next-steps-on-energy-ukraine.html "EU leaders to discuss next steps on energy, Ukraine") Technology is not the most pressing obstacle [banks face](https://www.financedigest.com/analysis-powerful-swiss-central-bank-faces-reform-calls-in-wake-of-credit-suisse-rescue.html "Analysis-Powerful Swiss central bank faces reform calls in wake of Credit Suisse rescue") when adopting this business model. Current API technology is already sufficient for banks to share data with outside service providers. Rather, the key for this evolution of the sector lies in banks’ appetite for [risk and willingness to reinvent their business model](https://www.financedigest.com/insurers-must-reimagine-traditional-risk-models-to-adapt-to-climate-change.html "Insurers Must Reimagine Traditional Risk Models to Adapt to Climate Change "). They must abandon preconceived ideas about only doing what’s required by regulatory oversight. Instead, they should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside [technology firms](https://www.financedigest.com/technology-trends-heat-up-for-financial-firms.html "Technology trends heat up for financial firms"). Only then will banks take full advantage of their data assets, [creating value](https://www.financedigest.com/how-to-create-value-in-digital-transformations.html "How to create value in digital transformations") for the customer and further strengthening the relationship. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---