Sibos 2023: State of play – open banking and open finance
Each month, Philip Benton, Principal Fintech Analyst at Omdia, explores a new topic and assesses the “state of play”, providing an in-depth analysis and understanding of the market landscape.
This month, with Sibos in full swing, Philip takes an in-depth look at open banking and open finance.
Sibos is always a highlight in the calendar, but the 2023 edition in Toronto feels more important than ever as the banking industry grapples with high inflation, rising interest rates, and rebuilding trust in the wake of banking collapses and an ongoing cost-of-living crisis.
The theme at Sibos this year is ‘collaborative finance in a fragmented world’, with open finance being a key trend to achieve this.
Maturing open banking infrastructure presents opportunities for more complex use cases
Open banking has been a talking point at Sibos for many years since its introduction by the UK’s Competition and Markets Authority (CMA) in 2018. The UK is now regularly seeing monthly API calls of over 1 billion and reaching a maturity whereby open banking rails are being increasingly used for more complex use cases – one example being payments.
36% of respondents in Omdia’s survey of payments issuers/acquirers stated that they saw “new payment services” as one of their top three opportunities as a result of open banking. The EMEA region see the most potential in open banking payments with almost 40% of respondents stating that it is in their top three opportunities. The UK meanwhile witnessed a surge in open banking payments during July 2023 with 11.4 million payments made, which was a 9.3% increase on the month prior and a 102.4% year-on-year rise.
Many of these payments are for funds transfers and wallet top-ups, but increasingly merchants are accepting it as an alternative method to card payments. JP Morgan, NatWest, and Bank of America have all launched “pay by bank” products that utilise open banking rails. NatWest’s Payit has already processed more than £1 billion worth of transactions in the two years since its launch.
2023 has proven to be a tipping point for open banking payments in the UK, with “new payment services leveraging open banking APIs” being a top IT product investment priority for 31% of UK respondents in Omdia’s 2023/24 survey of payment issuers/acquirers. Variable recurring payments (VRP) are being labelled as the breakthrough use case: VRP is a more modern, secure, and flexible way of collecting regular payments for businesses and consumers than the traditional but inefficient direct debit or ACH system. Given the popularity of subscriptions and preference for utility firms to collect regular payments, VRPs could be the hero use case, offering flexibility to customers and accelerating adoption in the UK and the rest of the world.
PSD3 initiates the start of open finance
The European Commission published its first draft of the third Payment Services Directive (PSD3) in June 2023, which calls out issues such as API quality that are crucial to overcome if the industry is to embark on a transition from open banking to open finance.
The European Commission also set out its initial position for a new financial data access (FIDA) framework which aims to provide secure access to a wide range of financial data, empowering customers and fostering innovation in the realm of open finance. The exciting part of PSD3 is its proposed changes to grant financial service providers (FISPs) the right to access a wide range of financial data, including mortgages, loans, and pension data on behalf of a customer. By regulating FISPs, it would also increase transparency and credibility in the industry and enable third parties to provide value-added services to customers (and businesses).
To see real progress in open finance, it requires the industry to collaborate, which was a call to action in a recent NatWest report reviewing the unmet potential of open banking. Beyond Europe, we are starting to see traction globally, with the US bringing in open banking regulation through the CFPB in 2024 and Australia rolling out its real-time payment network PayTo, which combined with open banking creates a multitude of new use cases (such as variable recurring payments and request to pay).
As we embrace a new world where data is more freely available, open finance is going to be fundamental to unlocking new segments of the market and ensuring consumers and businesses are able to better access, manage, and ultimately grow their finances.
About the author
Philip Benton is a Principal Fintech Analyst at Omdia and writes analysis on the issues driving technological change in financial services. Prior to Omdia, he led consumer trends research in retail and payments at strategic market research firm Euromonitor.
In this column, Philip will discuss the technological implications and consumer expectations of the latest fintech trends.