Long reads

Open Banking 2023: A global review

Sehrish Alikhan

Sehrish Alikhan

Reporter, Finextra

As open banking is embraced worldwide, we have taken a look at how different countries are approaching open banking, and the countries paving the way toward open finance.

The open banking ecosystem has evolved and flourished in recent years, allowing consumers to make seamless transactions online and on their mobile devices. Additionally, the implementation of app-based transactions and digital banking has led to an influx of developments in the fintech space, with traditional banks transferring to online spaces, abandoning legacy infrastructure in favour of cloud based platforms, and fintech partnerships, to name a few.

A report by Globe Newswire predicts that the open banking market will grow to $43 billion by 2026 from its value of $7 billion in 2018.

As open banking progresses, more countries are focusing on regulation to check financial institutions. In some cases, regulation was the cause for open banking and drove development in the sector. Some countries have chosen to pursue a regulated open banking framework, mandating that financial institutions share customer data with third party providers. Other contexts, such as the US, have followed a free-market approach to the initiative, allowing the market to lay the foundations for the industry and considering regulation of the sector further down the timeline.

Europe leads the industry

The UK is a trailblazer in the sector boasting 7 million open banking users.

Currently, Europe is leading new innovations in open banking through the use of Third Party Providers (TPPs), API-related innovations, e-commerce, and Internet of Things.

The European Union’s Payment Services Directive Two (PSD2) has impacted how open banking operates. The regulation has disrupted the market and paved a path towards more competition and commoditisation of the European market. Compliance with PSD2 requires financial institutions to adjust their open payments schemes to ensure transparency, while also leveraging the benefits that come with regulatory changes they need to alter their infrastructure. Looking to the future, the regulatory push will shape how open banking progresses in the UK and Europe as governing authorities assess the financial landscape.

The UK is a leader with its open finance efforts, followed closely by Germany, Spain, the Netherlands, and France. The UK government recently revised the Data Protection and Innovation Bill to prioritise open finance and adapt to new developments concerning digital IDs and smart data.

Asia sees a rise in open banking

After Europe, China is reported to have the largest open banking market according to Forbes. There are market-led approaches in development in Japan, Singapore, South Korea, and India, but formal open banking structures are yet to be established.

Singapore has risen as a powerhouse for open banking in the APAC region. The nation’s regulators, the Monetary Authority of Singapore and the Association of Banks, published an API playbook to direct banks and fintechs; significant steps to establish an open banking framework for financial organisations.

In other Asian countries, regulation is also becoming more critical. Japan’s watchdog, the Financial Services Agency, requires banks to publish their Open API policies, and in 2018, Hong Kong’s Monetary Authority established an Open API Framework. India implemented additional open banking regulation in May 2021, as the Reserve Bank of India (RBI) issued updates to their KYC policy to enable digital onboarding for customers. Furthermore, India is seeing a rise in fintech startups that are boosting the open banking market and opening up the space for new players.

Despite increasing developments in India and a flurry of new fintechs emerging in the space that are changing the financial landscape, South Asia hosts a large percentage underbanked and unbanked adults.

In the Middle East, Saudi Arabia, the UAE, and Bahrain have seen dramatic growth in the rise of fintechs and payment powerhouses. In January 2021, the Saudi Arabia Monetary Authority issued a roadmap for the launch of open banking, and in November 2022 issued the Saudi Open Banking Framework to establish use-cases in the ecosystem. In the same year, Dubai also announced licensing framework for TPPs.

Asia is seeing varying levels of development in different regions, with East Asia and Singapore standing out in rates of open banking implementation, and the Middle East and South Asia following suit with increasing regulatory provisions and a rise in fintechs in the space.

African countries tackle financial inclusion

A study conducted by McKinsey found that the African e-commerce market will continue to grow by 20% annually, reaching $40 billion by 2025. Nigeria is central to the African market’s rise into open banking, leading the way by enabling regulation and supportive digital banking infrastructure.

Yet, it remains that 50% of African adults are unbanked or underbanked, and financial exclusion rates are high due to a variety of factors including lack of trust in financial institutions, limited financial literacy, costly financial products, and distance from bank branches. Institutions such as Open Banking Nigeria have made progress in banking new customers and creating a new ecosystem of open finance in African markets in collaboration with the Central Bank of Nigeria.

Rwanda and Kenya are also seeing progress with regulatory development in open finance and emerging fintechs such as Tala, fintech aimed to provide loans to those without credit history. NMB Bank in Tanzania launched the nation’s first fintech sandbox, and Ghanaian fintech, Dash, is producing an interoperable transaction network for users.

However, regulatory clarity is still a challenge facing startups and open banking schemes across the African market, though there is progress being made on the financial inclusion front.

Latin America and South America undergo major developments

Brazil is taking the lead in open banking developments in South America. The nation’s open banking market blossomed from zero to five million users in the span of one year, with the reasons cited for this dramatic acceleration including a wide scope for data sharing, regulation provided by the central bank, and standardisation of user experience. Large open banking providers in Brazil include Belvo and Quanto, the former of which raised over $50 million in key markets in LATAM.

Following in Brazil’s footsteps, Mexico is working towards fintech regulation in 2023, while Colombia, Chile, and Argentina are increasingly participating in developments in the open banking sector. During July 2021, Colombia issued an open banking decree for all institutions under the eye of authority Superintendencia Financiera de Colombia. October 2022 saw the establishment of an open banking infrastructure in Chile under the Fintech Bill. In May 2022, Argentina’s central bank, BCRA, announced requirements for open banking schemes in the nation.

Overall, Latin and South America are strong contenders for growth in the open banking industry in the years to come, positioning them as future  significant players in the international market.

North America establishes open banking regulation

The US and Canada have been seeing new developments in the open banking space which are supported by consumer demand, but are still overcoming hurdles in implementing regulation. There are over 42 million open banking accounts in the US, according to the Financial Data Exchange. Similarly, in Canada, people are eager to use open banking technology to accelerate their transactions.

The Biden Administration released an Executive Order in July 2021, requesting that the Consumer Financial Protection Bureau (CFPB) map out guidelines for consumers to transfer payments information. The CFPB open banking framework will aim to move towards a more decentralised market and require institutions to establish secure data-sharing methods.

In Canada, the government announces that an open banking regime will be instated in 2023.

There has been more momentum for open banking in the past few years in North America, along with a desire to catch up with open finance in Europe. A frequently cited challenge facing open banking in the US is the shift from legacy architecture and the time required for change. Alongside that, streamlined payment experiences are not the norm, as 55% of US adults have not heard of open banking according to a 2021 survey.

Oceania moves towards open finance

Australia has emerged as a substantial player in the global open banking industry. The nation has put multiple open banking legislations intro action, such as the Consumer Data Right Act that allows consumers to share data with authorised third parties.

Australia is picking up speed when it comes to open finance developments, and is already evolving into Open Utilities and Open Telecom, which go beyond finances and utilise technology to streamline other aspects of customer experience.

Key Takeaways

  • Europe and nations in the APAC region are leading in open banking at the start of 2023.
  • Brazil and Australia are innovating at a fast pace and may overtake their competitors in the open banking market if they continue to grow.
  • There are emerging open banking advancementss in Africa, North America, and South Asia, yet they face issues of financial inclusion and need to cater to the underbanked and unbanked.
  • Regulation is progressing at different speeds depending on country and region, but open banking is becoming more pervasive in day-to-day transactions globally.

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