A study of several jurisdictions examines the model of open banking, and finds that the financial services sector is strongly positive, although there are variations between specific places.

Research by fintech platform Finastra among 785 professionals at global financial institutions and banks finds that the model known as “open banking” is eagerly sought, with the United Arab Emirates, Hong Kong and Singapore among the most enthusiastic.

Open banking is a term describing how third-party financial service providers, such as insurers or credit card firms, open access to consumer banking, transactions, and other financial data from banks and non-bank financial institutions. Open banking is becoming a major source of innovation which is poised to reshape the banking industry. 

Globally, more than nine in 10 financial institutions said that open banking is important to their organisation. Moreover, this year only 1 per cent of respondents said the model hadn’t made a significant impact on their organisation, down from 13 per cent last year.

Open banking is seen as a “must have” by over half of financial institutions around the world (51 per cent), with the UAE leading the way in terms of open banking’s importance (68 per cent), followed by Hong Kong (58 per cent) and Singapore (56 per cent). Whereas, on average, half (51 per cent) of European markets say that open banking is “important but not essential” for their organisation.

The findings are from the Financial Services: State of the Nation Survey 2021. Research was conducted in March this year.

Considering wider trends for the next 12 months, Banking as a Service (BaaS) is anticipated to have an impact on 85 per cent of global financial institutions, of which 40 per cent say there will be a significant impact. Whilst all markets broadly expect BaaS to be impactful, Hong Kong (92 per cent), the UAE (90 per cent) and Singapore (87 per cent) expect the impact to be greatest.

The cost of development/expense regulations being too tight and management or decision-maker thinking remain core barriers. However, the cost of development/expense of R&D is a growing concern year-on-year – previously 37 per cent in 2019, 43 per cent in 2020 and now at 47 per cent this year, the report said. 

It has been argued that open banking could benefit wealth management by easing pain points such as onboarding. Wealth managers need considerable data for onboarding, and much of the more standard information is held in a retail bank. Open banking models might unblock some of the process.

Overall, complex regulations have been identified as the number one barrier this year, with 40 per cent of global financial institutions agreeing. Intricate regulatory frameworks and differences between markets within the financial sector are also illustrated by France (47 per cent), Singapore (45 per cent) and Germany (44 per cent) selecting complex regulations as their number one barrier.

The security of open banking is concerning – it has been identified by 39 per cent of all institutions as a barrier to adopting the open banking approach.