Open Banking is gaining major momentum globally. Statistics have shown that in 2020 alone there were 24.7 million individuals worldwide that have used Open Banking services and is forecasted to reach 132 million users by 2024 (Source Statista). With regulators and financial institutions in the MENA region ready to embrace it, Open Banking is only expected to grow further in the region.
Why are the growth rates so high and how is Open Banking any better than traditional banking, or in other words, closed banking?
With the ever-growing data-conscious users, who owns your data has become the number 1 question in people’s minds. Data ownership matters the most to individuals today consuming any digital product and service. Traditionally, within financial services, banks kept hold of its customers financial data. With Open Banking, data ownership goes back in the hands of its rightful owner. Only users themselves can provide consent to whom they decide to share that data with and can revoke access at any given time.
A Call for Better products!
Additionally, banks in many instances (if not all) have barely utilized the insightfulness that their consumers financial data can provide them in enhancing and advancing their offerings. The data was kept sitting idly on top of their legacy systems. This resulted into banks offering a ‘one-size fits all’ products and services that does not fall true to today’s banking customer’s expectations. With Open Banking bringing power back to the users, banking customers can consent to sharing their data to receive personalized financial products and services that are better aligned to their personal needs.
The Need for Speed & Room for Innovation!
Traditional banks today are not just competing with other banks; however, they are also facing competition from tech-giants the likes of Google and Facebook that are entering this space and are ready to deliver on innovative products and services and are able to do so – quick! With closed banking, banks can only go so far with data sitting idly, system limitations and lack of agility in which their performance is unmatched for!
The traditional process heavily involves lengthy paperwork, management sign-offs, setting up an internal innovation team specifically for the product & service being developed and not to mention testing as well. With Open Banking, the path to innovate is much faster.
With sharing their banking APIs (with user consent of course!), banks can leverage on the financial data to gain insights on the user’s behavior and demands and in collaboration with other financial institutions, smaller fintechs and approved third-party service providers (through Open Banking platforms) they will be able to develop and test new products and services or even simply integrate existing products & services onto the bank’s mobile application with faster time to market.
Here’s a simple diagram to explain Closed Banking vs Open Banking
We cannot deny the major role that traditional banking had over the past centuries in laying the essential foundations to money management as-we-know-it today however that does not mean that banking cannot be made better, and this is where Open Banking comes to play.
So, what is the verdict? There isn’t a true winning verdict in this case. In fact, Open Banking builds on the current systems and helps in creating an interconnected ecosystem thus would require the support and collaboration of both existing and new players to take the financial sector to new heights, to make more possible and to enable a new world of financial services. As they say, it takes two to tango!