Juniper Research defines Open Banking as the practice of “sharing, and to an extent control, personal financial information between FIs (Financial Institutions) and TPPs (Third-party Providers), mostly in the form of Fintech developers, subject to customer consent via the use of APIs (Application Programming Interfaces).”
The Juniper Research report noted that Open Banking has “been revolutionary for TPPs; helping them extend the scope of their offerings beyond just banking and into other areas with enhanced capabilities.”
According to Juniper Research, Open Banking is “also advantageous for banks, despite the perceived loss of custodianship over their data, by providing greater accessibility to banking services.”
Furthermore, Open Banking can “help serve big tech, with these companies able to leverage Open Banking to create tailored services according customers’ preferences and/or economic limitations; converting themselves into smaller-scale FI-like organizations.”
As mentioned in the report from Juniper Research:
“Since traditional banking products and services are made more convenient by TPPs via greater data access, customers can proactively manage their finances and shape the development of new financial offerings. This is particularly noticeable in the realm of digital payments, where merchants and customers transact through eCommerce, which has the greatest number of use cases for Open Banking. These include supporting new forms of currencies (eg cryptocurrencies), as well as other transaction mediums, such as digital wallets and cards.”
The report from Juniper added that as such, Open Banking exists “essentially beyond the scope of regulations between FIs and TPPs around the sharing of financial data.”
As noted in the report:
“Before the emergence of PSD2 (Second Version of the Payment Services Directive) regulations in the EU and the UK’s regulatory interventions (eg the Order of 2017 and Open Banking Legislation of 2018; mandating the nine largest banks in the UK to provide standardized open APIs for licensed fintechs’ use) enforced by the CMA (Competition and Markets Authority) and the FCA (Financial Conduct Authority), data sharing was primarily considered to be a tool for creditworthiness assessment and an inter-bank practice.”
As noted in the report, now, it is typically perceived to be “a concept that paves the way for the creation of new business models for both banks and businesses, but also as a key enabler for many use cases that are part of daily financial activities.”
Open Banking can “typically be examined through two lenses: technical and conceptual.”
The former “relates to the technical infrastructure that is powered by APIs, existing in tandem with customer channels and product/service lines, and built as an additional layer on top of core banking systems.”
Based upon this infrastructure, Open Banking has “built up a portfolio of many use cases across numerous sectors, such as core banking services, lending, and insurance, whilst linking other market actors to banks and its customers.”
The conceptual perspective however, “represents the intangible aspect of Open Banking, comprised of added value, financial transparency, customer awareness, regulatory involvement, and concerns regarding security and data privacy.”
The report from Juniper Research added:
“In reality, Open Banking sits at the intersection of these two perspectives; acting as a governing regime that connects FIs and fintechs to wider society and regulating their interactions. Naturally therefore, the market status is descriptive of the interplay between APIs, regulations, FI and fintech relationships, and customers’ perceptions of Open Banking.”
The report also mentioned:
“Global Open Banking payments transaction values will exceed $330 billion globally by 2027, up from $57 billion in 2023. The report predicted that the development of new use cases, such as bill payments via Open Banking, will drive adoption, given Open Banking’s simplicity of use versus alternatives, such as card payments.”
The report concluded:
“It is anticipated that efforts to educate consumers about the security and benefits
of Open Banking will catalyze market growth; helping alleviate common consumer fears and misconceptions regarding the potential misuse of financial data that third parties are granted access to.”