The Future of Open Banking Relies on Today’s Technology
- Open banking is expected to grow rapidly
- Complex regulations are common worldwide
- Open banking can "dismantle silos"
A recent post at Forbes.com points out that open banking is revolutionizing the financial services industry by enabling secure data exchange between banks and third-party providers. The European Union's Revised Payment Services Directive (PSD2) has played a crucial role in making open banking a reality across Europe, fostering innovation and competition in the payments market.
The global open banking market exceeded $30.89 billion in 2024 and is projected to reach $38.86 billion by 2025, growing at a compound annual growth rate (CAGR) of 25.8%.
Rapid Growth Ahead
Open banking is expected to grow rapidly in the coming years -- and, why not? Open banking provides both customers and businesses with new ways to interact, manage money, and share responsibilities.
For businesses, open banking streamlines processes by integrating payment systems in a way that reduces transaction friction. It also opens new revenue streams by enabling businesses to develop and manage APIs or collaborate with third-party developers.
Improved customer engagement is another benefit, as access to consumer behavior insights allows businesses to tailor their offerings more effectively. Finally, cost efficiency is achieved through automation, reducing the need for manual data handling and optimizing operations such as inventory and financial management.
Complex Regulations
The article points out that regulatory frameworks across different regions are complex, citing examples of Europe and Australia. However, the US proves to be even more complexed as explained:
United States: A fragmented legal landscape creates uncertainty, forcing banks to adopt varying compliance strategies. However, the road to open banking is not without its challenges. Navigating regulatory frameworks, ensuring security and privacy, and addressing technology infrastructure gaps are some of the key obstacles that financial institutions must overcome. Compliance with regulations like PSD2 and the Australian Consumer Data Right (CDR) is crucial, as is the adoption of advanced security measures such as encryption, tokenization, and multifactor authentication.
Additionally, as we recently reported, the Trump Administration has decided to halt all activities from the Consumer Financial Protection Bureau (CFPB).
In October of 2024, CFPB finalized a rule for open banking, requiring financial institutions, credit card issuers, and other financial providers to unlock an individual’s personal financial data and transfer it to another provider at the consumer’s request for free.
While the recent freeze of the CFPB makes enforcement unclear, banking consulting firm CCG Catalyst believes this should NOT halt efforts to deploy open banking technology.
And, we cannot forget the banks still leveraging antiquated legacy systems which struggle to integrate with APIs, along with scalability.
Looking Forward
As the banking industry progresses, open banking through APIs is truly "dismantling silos" and transforming the banking landscape.
This includes utilizing AI and machine learning technologies like OrbNet AI -- which streamline check processing and provides data that can be easily transferred to other business intelligence systems.
Open banking continues to evolve. It represents a step towards a more transparent, inclusive, and customer-centric financial ecosystem. Banks can also leverage core providers and service bureaus to assist in achieving the goals of open banking, as they are able to deploy APIs to utilize new technologies that meet their goals.