Financial service providers have a positive outlook on the benefits of open banking. However, they agree that there more regulations must be observed, and they view data security and privacy as the biggest challenges open banking face, according to Envestnet | Yodlee’s State of Open Banking Research.
Envestnet | Yodlee surveyed over 200 decision makers from US banks, wealth management, and fintech firms on their expectations regarding open banking in the near-term and long-term.
The study found that 92% of those surveyed agree that consumers are the ultimate beneficiary of open banking. When the survey asked the respondents who would benefit the most aside from consumers, majority of bank and fintech leaders replied their own organisations and respective businesses.
Over half of fintech leaders (54%) felt that they would benefit the most, and over half of bank leaders (57%) felt that global and local banks would gain the perks of open banking. Only a quarter (25%) of wealth management leaders think open banking will benefit them.
When asked how important is the advancement of open banking with regard to the following factors, respondents viewed these factors important:
• Generate new business models/revenue opportunities: 83%
• Strengthen their relationship with customers: 81%
• Stay competitive against disruptors: 78%
• Fuel customer acquisition: 78%
• Expand access to underserved or new target customers: 76%
• Improve customers’ financial well-being: 73%
“Open banking is about empowering choice for the achievement of positive financial outcomes for consumers, and also for innovators to safely engage in the financial ecosystem. Banks and wealth management firms will be able to build and leverage a greater array of solutions to better service their customers’ needs with confidence and less risk,” notes Envestnet | Yodlee senior vice president of data acquisition and management Chad A. Wiechers.
The open banking opportunity
All (99%) leaders surveyed believe that open banking provides an opportunity for their organisation to leverage, with 59% seeing that opportunity as having a potentially high impact.
Because of this advantage, 66% of financial service providers have already launched or have plans in the works to launch open banking initiatives within the next 18 months. Additionally, 56% of the total respondents have or expect to phase out screen scraping within the next 18 months.
Only 21% of the respondents see open banking as having a significant impact on their business in the next 12 months. 59% believe that open banking will benefit them in the next 5 years. As a group, 70% of fintech leaders are expecting open banking to have an impact on them.
Where they see opportunity, they see risk
With the opportunity, there are underlying risks. Leaders are also cautious: 83% of them see either moderate or high risk from introducing open banking.
Fintechs are the most concerned: 33% of them see high risk while only 21% of banks feel that way. 81% of all respondents believe that consumer financial data access and sharing could benefit from greater regulatory certainty.
When asked what the biggest challenges are in adopting an open banking strategy at their organisation, data security (48%) and privacy (39%) were identified as the top two.
Only 8% felt that a lack of openness to partnerships was a challenge, meaning 92% are seemingly open minded to partnerships.
“We can all agree that the consumer will be the big winner when it comes to the adoption of open banking,” concludes Wiechers. “The broader data supports what we are already seeing in the market, banks are open to partnerships to enable trusted consumer permissioned access to data for their consumers to share their financial information with the financial app of their choice as they seek to ultimately improve their financial wellness.”
