How open banking is revolutionizing the financial sector
While the pace of digital transformation, spurred by the pandemic and supply chain disruption, seems to have slowed, digitization has nevertheless laid the groundwork for a full-scale revolution of the financial industry.
The “platformification” of banking and financial services, or open banking, is creating rich new data-driven offerings that reflect customers’ lifestyles and experiences. And with the emergence of transformative AI, especially generative AI and large language models (LLMs), this trend is only accelerating.
What is open banking?
Open banking is a market framework that enables customers to securely share their banking and financial data with a chosen ecosystem of financial service providers. Interactions, often through apps, tend to focus on a specific service or activity, such as applying for a mortgage, making payments, or managing credit.
Open banking is the first step toward open finance, which extends data sharing to third-party financial services, including stock trading, insurance, pension management, and more. The goal is to create a new level of innovation, personalization, and opportunity in the financial services industry, eventually broadening into nonfinancial markets like healthcare, retail, and entertainment. We call this the smart financial ecosystem.
Generative AI and LLMs are perfectly suited to act as accelerants—taking rich features from rich integrated data to infuse dynamic models that yield rich data signals to incorporate into critical workflows. In effect, they can help transform many interconnected use cases where optimization and personalization will allow business processes to yield higher value outcomes through contextual decisioning with AI that’s performant, responsible, and trusted.
The state of open banking today
To better understand what’s driving today’s open banking revolution, Teradata partnered with Futurum Research to conduct a double-blind survey of over 280 retail and commercial banks and fintech providers in the US, Canada, and Brazil.
The research details how open banking is changing the industry, what strategies providers are implementing today, and where they’re focusing in the next few years. Here are five statistics that help tell that story.
- 68% of retail banks and 73% of commercial banks said they’re already actively implementing open banking strategies. This is because financial data sharing has been an ongoing industry need. In fact, for the past decade, banks have been investing in the data infrastructure needed to make sharing financial information a reality.
- 72% of providers identified improving the customer experience for mobile transactions as their top consumer-facing goal. For customers to opt into sharing personal and financial data, mobile transactions need to be seamless, secure, and straightforward.
- 68% of providers said improving real-time insights into customer activities is a significant driver of their open banking initiatives. In fact, 77% will make investments of $20 million or more specifically for data and analytics initiatives in the next two years.
- 94% plan to embrace data monetization, making their internal data available to third parties. And 63% are in favor of creating an open-API “financial marketplace” for the secure buying and selling of data between providers.
- 60% of providers plan to have more than 25 dedicated open banking employees in the next three years. This not only demonstrates a commitment to open banking as a business strategy, but also signals the strategy’s maturity in an organization.
Where will open banking go from here?
Open banking offers providers an opportunity to transform by developing the infrastructure and flexibility needed to continuously adapt to changing customer needs. This requires addressing challenges around data security risks, fraud prevention, unpredictable compliance requirements, and even customer participation.
But it’s also important for organizations to recognize that open banking and AI-driven innovation ultimately lead to open finance. This personalization of a customer’s financial activities beyond banking into investments, loans, insurance, and financial planning will become a roadmap for subsequent opportunities and innovations, not only in the financial industry but also in retail, healthcare, entertainment, and more.
Find out how open banking is changing the financial services industry. View the top 8 insights from the Futurum Research report, “The Future of Banking Is Open.”
This is the first in a series of blogs, interviews, and other assets exploring the results of the study and discussing how Teradata’s Open Analytics Framework on VantageCloud Lake can help financial institutions accelerate business outcomes. Reach out to Teradata to schedule a presentation on the Americas survey results and discuss what it could mean for your organization’s strategy, objectives, and initiatives.
