The continued rise of Open Banking has had a profound and disruptive effect on the financial sector. For business leaders such change requires them to navigate challenges and seize opportunities in equal measure.
As we look ahead, executive leaders will play an increasingly important role in the growth of Open Banking. Without strong leadership, businesses will not be able to strike the right balance between embracing innovation and change whilst mitigating risks within their business. If Open Banking is to meet its potential and adoption rates are to continue to increase, business leaders must take a lead to drive investment and understanding. Written By Jacob Ideskog ,CTO at Curity
The Rise of Open Finance
The disruptive force of Open Finance cannot be underestimated. It has drastically changed the services that financial institutions now offer consumers which in turn has given them greater choice, flexibility and autonomy over their finances than ever before.
Many senior executives within financial organisations, to their credit, saw the opportunity before them. Our research highlighted that maintaining and improving business competitiveness (58%) as well as delivering new products and services (55%) were the top two motivators for adoption across the sector. However, it is worth noting that consumer demand came in third (48%), which does indicate that some financial institutions were more reactive than proactive when it came to adopting Open Finance. However the ability to navigate a period of drastic change shouldn’t be underestimated and top down buy-in has undoubtedly played a crucial role in the adoption of Open Finance to date.
It is also important to note that certain external factors have played a role too. The pandemic has accelerated the adoption of Open Banking, as brick and mortar banks were forced to shut their doors and consumers moved online even more so than before. Now, there’s a greater emphasis placed on digital-first solutions, and online channels are becoming a first port of call for many.
Additionally, in the UK for instance, which has been a leading market globally when it comes to Open Finance, saw the introduction of PSD2 legislation in 2015. This regulation has been a key driver of adoption of Open Finance in the UK providing both the infrastructure and security required to encourage innovation.
Top down buy-in is essential
For Open Banking to take the next step and attain mass consumer adoption, business leaders must continue to take an approach that is completely future facing and play an active role in the adoption of new technologies. Whether it’s with new businesses, start-ups or developing tech, achieving scalability is often the hardest task. It’s critical that execs across the financial sector ensure everyone in their organisation embraces this new paradigm.
According to Curity’s research, 84% of people agree that senior management have a strong understanding of concepts and challenges of third-party data sharing and informed consent from users are well understood by senior management. Encouragingly, this does indicate that senior executives within finance are not only engaging with Open Finance but understanding what the challenges ahead that may prevent further adoption and continued growth are.
There is also an important role for senior leaders to play not just within their organisations but in the industry at large. By working collaboratively with industry peers, they can pave the way for wider adoption and smaller organisations to also embrace the opportunities created by Open Finance. Half of people within financial organisations in the UK viewed industry organisations as critical to the success and widespread adoption of Open Finance. By creating spaces for discussion and collaboration as well as establishing and working with industry bodies to ensure standards are met, senior leaders can ensure that the potential of Open Banking is realised.
Invest to grow
Driving change and positive action is the responsibility of senior management. They need to ensure there is continued investment in Open Finance projects within their organisations and that the teams running the initiatives have the resources they need. Two fifths of organisations surveyed planned to invest significantly more in 2022, which is certainly an encouraging statistic. However, the future of Open Banking would be in a far better position if that was at 50% or even 60%.Our research shows that it’s vital the financial sector continues to invest in this area.
This investment will play a critical role in driving and consolidating the adoption of Open Banking. Firstly, it will aid the introduction of new technology solutions, as well as allow for the training of new staff and hiring of specifically skilled staff such as Open Banking deployment specialists.
Investment in education and training will be critical for success. Senior management needs to foster a culture within the business that not only fully understands but embraces Open Finance. Additionally, this will also be extremely beneficial to improving consumer understanding, by enabling staff to pass on their knowledge and understanding to customers and further drive consumer adoption.
Another key aspect of continued investment is building trust with consumers around the benefits and security of managing finances online in this way. Upskilling staff, updating security systems and introducing new technologies will also provide consumers with peace of mind about the management and security of any personal identifiable information and removes a key barrier to wider adoption.
There is clear momentum behind Open Banking, nearly half of all large organisations in the financial sector have adopted this new technology and three quarters plan to do so in the next 18 months. However, this is not cause for senior leaders in the financial sector to rest on their laurels. In order for them to realise the potential of Open Banking and not be left behind by competitors, it’s crucial they take an active role in driving adoption both internally and externally and ensure adequate investment is put into continued innovation.