# Open Finance can help unlock innovation across the financial ecosystem
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-06-30
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: How Challenger Banks Are Revolutionising the Banking Sector
Meta Description: Discover how challenger banks are revolutionising the banking experience, with a focus on customer-centric services and innovative technologies.
URL: https://financedigest.com/open-finance-can-help-unlock-innovation-across-the-financial-ecosystemhtml

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_By **Anthony Badger,** FS&I API Lead at_ [**_Axway_**](https://www.axway.com/en)

With customers increasingly prepared to shop around for their banking needs and rising demand for digital services, the banking sector is under relentless pressure to innovate to survive and prosper. As an example of the volatility banks are facing, more than 700,000 people [switched](https://www.statista.com/statistics/417397/number-of-switching-current-bank-accounts-uk/) their current account from one bank to another in 2020 in an effort to find better deals and services.

Customer experience is becoming a major differentiator in how people choose their services. Companies like Amazon and Netflix have laid the groundwork for [digital brands](https://www.financedigest.com/digital-marketing-trends-that-will-change-how-brands-operate-in-2021.html "Digital Marketing Trends that will change how brands operate in 2021") – and the banks are not exempt. No wonder the likes of Monzo, Starling and Revolut have won millions of [customers by taking on the mantle of challengers revolutionising the banking experience](https://www.financedigest.com/how-will-open-banking-impact-the-customer-experience.html "How will Open Banking impact the customer experience?"). Their app-based experiences have [won many converts because they put the customer front and centre of the banking](https://www.financedigest.com/swiss-national-bank-says-inflation-battle-not-yet-won.html "Swiss National Bank says inflation battle not yet won") experience.

In this febrile atmosphere, there has been no shortage of contenders with 40 challenger banks active in the UK at the end of 2020, according to analyst firm [Beauhurst](https://www.beauhurst.com/blog/uk-challenger-banks/). None of these new entrants have been encumbered with the reputational baggage weighing down so many of their incumbent rivals. Without the burden of legacy technology infrastructure or vendor lock-in to [hold them back](https://www.financedigest.com/fear-of-failure-holding-back-british-entrepreneurs-new-research-finds.html "Fear Of Failure Holding Back British Entrepreneurs, New Research Finds"), they have been able to innovate and bring ideas to market much more quickly. They have achieved this level of innovation while giving [customers a much better experience](https://www.financedigest.com/curating-a-fully-contactless-customer-experience-for-payments.html "Curating A Fully Contactless Customer Experience for Payments ") than they have been accustomed to from traditional banks.

Their success emphasises the importance of [technology  in developing stronger and deeper relationships with consumers and providing 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") that are more appealing and customer-centric. As the challengers begin to enter additional markets (mortgage, insurance, foreign exchange and even cryptocurrency), traditional [banks are being forced to reevaluate how they use technology](https://www.financedigest.com/cut-evidence-empower-how-technology-can-help-banks-deliver-on-cop27-commitments.html "Cut, evidence, empower: How technology can help banks deliver on COP27 commitments") to try and reconnect with their customers.

It’s imperative that they do so. Banks pay a high cost for customer churn so it makes far more sense to retain customers by [providing an experience that keeps](https://www.financedigest.com/red-box-and-bloomberg-partner-to-provide-comprehensive-record-keeping-and-trade-reconstruction-services-for-financial-compliance.html "Red Box and Bloomberg Partner to Provide Comprehensive Record Keeping and Trade Reconstruction Services for Financial Compliance") them loyal and happy. The difficulty for big banks is they are often too unwieldy to introduce innovative [financial products quickly and many are hamstrung by a reluctance to change](https://www.financedigest.com/data-centres-and-the-changing-financial-trading-landscape.html "Data centres and the changing financial trading landscape") their backend systems of record.

This reluctance is a drag on their efforts at innovation. It prevents them from adopting an open [finance approach that allows them to use and share customer data across multiple finance sectors](https://www.financedigest.com/why-the-finance-sector-must-prioritise-mobile-security-over-innovation.html "Why the finance sector must prioritise mobile security over innovation") in a holistic way and deliver a more integrated set of services. The open finance ecosystem connects individuals with other platforms and companies to offer them a more integrated means to manage their [finances and consume](https://www.financedigest.com/navigating-consumer-data-in-the-finance-industry.html "NAVIGATING CONSUMER DATA IN THE FINANCE INDUSTRY") financial services.

As an example, the open [finance model enables someone to understand and manage](https://www.financedigest.com/how-parents-can-help-students-manage-their-finances.html "How Parents Can Help Students Manage their Finances") their health and spending status using a smartwatch and rewards the individual for allowing third party providers to use data from the watch. With open finance application programming interfaces (APIs), a person’s health app could offer improved terms for health or [life insurance](https://www.financedigest.com/types-of-life-insurance.html "Types of Life Insurance") using their health statistics.

To deliver these changes, [banks need to integrate all of their legacy and modern technology applications and build marketplaces and ecosystems](https://www.financedigest.com/transforming-the-retail-banking-ecosystem-its-all-about-technological-innovation.html "TRANSFORMING THE RETAIL BANKING ECOSYSTEM: IT’S ALL ABOUT TECHNOLOGICAL INNOVATION") that meet their customer needs. This requires them to [automate their processes to make it easier for internal and external banking](https://www.financedigest.com/banking-on-snow-automation-platform-for-success.html "Banking on Snow Automation Platform for Success") application developers, allowing them to focus on frontend tasks instead of spending unnecessary time and resources on legacy integration at the backend.

To understand the way the financial ecosystem is changing, it pays to acknowledge the financial process may not involve [customers](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") interacting directly with a financial services organisation. For example, a leading automotive manufacturer has integrated [insurance to enable customers to buy cover when they purchase a car](https://www.financedigest.com/10-things-you-could-be-doing-that-invalidate-your-car-insurance.html "10 things you could be doing that invalidate your car insurance"). They can get [cover with the push of a button without having to provide](https://www.financedigest.com/how-insurance-providers-are-starting-to-use-adas-data-to-price-cover.html "How insurance providers are starting to use ADAS data to price cover") additional information. Once they are on the road, drivers will be able to use [services through their car](https://www.financedigest.com/car-rental-service-market-is-forecasted-to-grow-at-a-7-2-cagr-by-2031-comprehensive-research-report-by-fmi.html "Car Rental Service Market is forecasted to grow at a 7.2% CAGR By 2031- Comprehensive Research Report by FMI") to find, reserve and pay for parking spaces. They will be able to use their car to order and pay when going to drive-throughs, all based on preferences they have registered previously.

Open [finance will make it possible for 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") to invite a wide variety of companies to become part of their ecosystem using APIs. In turn, [banks will be given the opportunity to become part of other ecosystems](https://www.financedigest.com/what-does-2022-hold-for-open-banking-some-predictions-from-the-ecosystem.html "What does 2022 hold for open banking? Some predictions from the ecosystem"). This will [lead to more integration between organisations and more offers being made available to consumers](https://www.financedigest.com/chromatography-accessories-and-consumables-market-booming-demand-leading-to-exponential-cagr-growth-by-2023.html "Chromatography Accessories and Consumables Market Booming Demand Leading to Exponential CAGR Growth by 2023").

The [banks have enjoyed success with their traditional model for many years](https://www.financedigest.com/four-years-of-open-banking-2022-may-be-the-best-year-yet.html "Four years of Open Banking: 2022 may be the best year yet "), but they are being forced to bring new ideas to market at a speed and agility they have not achieved before. With traditional banks under pressure to adapt to heightened customer expectations fuelled by the success of the challenger banks, the stage is set for tech-led [innovation to become widespread across the entire finance](https://www.financedigest.com/innovations-in-finance.html "Innovations in finance") sector.


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