As the financial landscape shifts from open banking to a comprehensive open finance paradigm, banks must reinvent their roles, business models, and capabilities. This transformation promises to reshape every aspect of how consumers and companies interact with financial services.
Understanding Open Banking vs Open Finance
Open banking opened the door to consumer-permissioned access to bank account data via secure APIs, enabling third parties to build innovative payment and budgeting tools. Yet its scope remained largely within the realm of current accounts, payments, and basic credit.
Open finance expands that door into an entire universe of financial services. It connects banking, investments, pensions, insurance, payroll, utilities, loyalty programs, and more. Together, these form a programmable, modular financial ecosystem where data flows seamlessly across sectors.
Market Forces Shaping the Shift
Global adoption of open finance is already accelerating. Over 132 million users access open finance services worldwide, generating around 330 billion payment transactions annually. By 2030, analysts forecast a US$7.2 trillion embedded finance market and one billion global participants.
Key drivers include:
- Rapid growth of A2A payments, offering real-time risk scoring and personalization and lower costs than card schemes.
- Embedded finance and Banking-as-a-Service models, embedding financial products directly into non-financial platforms.
- Mobile-first experiences with biometric security and AI-driven insights becoming standard.
Regulatory Landscape and Implications
Regions diverge in their approach to open finance. The EU and UK are extending PSD2 into PSD3 to enhance interoperability, security, and consent. Australia’s Consumer Data Right is evolving to give consumers broader control over financial data. In contrast, the US remains market-led but is moving toward formal regulation under the CFPB’s Section 1033 rule.
This patchwork creates opportunities and challenges. Banks operating across borders must navigate differing consent frameworks, technical standards, and liability regimes. Harmonized global standards would minimize fragmentation and boost consumer trust, but consensus remains elusive.
Banking Models in an Open Finance Era
To compete and lead, banks are moving beyond data gatekeeping to become ecosystem orchestrators. They establish governance, risk standards, partner onboarding, and liability rules, leveraging their trusted risk management and governance heritage.
New business models include:
- Platform and BaaS providers offering KYC, compliance, payment processing, and deposit services to fintechs and brands.
- Data and analytics providers monetizing consented insights such as cash-flow forecasting and credit scoring.
- Specialist product manufacturers supplying regulated credit, deposit, and insurance products behind digital brand interfaces.
- Cross-industry co-creators developing joint offerings with retailers, telecoms, and marketplaces.
Strategic Priorities for Banks
To thrive in an open finance world, banks must sharpen several core capabilities and invest strategically:
- API architecture: Publish secure, standardized API rails for payments, identity, account aggregation, and credit decisioning.
- Consent management: Build fine-grained dashboards enabling customers to grant, monitor, and revoke data sharing.
- Security and risk: Implement advanced biometric authentication, fraud analytics, and tokenization to safeguard the ecosystem.
- AI integration: Leverage machine learning for underwriting, regulatory feedback loops, and personalised financial coaching.
Embracing the Future
As finance evolves from siloed open banking to a truly interconnected open finance network, banks that adapt will find vast new frontiers of innovation and revenue. By acting as orchestrators, building robust API platforms, and upholding the highest standards of security and privacy, banks can anchor the next generation of financial services.
Leaders who seize embedded finance and BaaS opportunities and master dynamic, event-triggered programmable payments will shape consumer expectations and industry norms. The journey demands vision, collaboration, and unwavering commitment to customer empowerment.
The open finance revolution is underway. Banks that embrace transformation, leverage their strengths, and pioneer new business models will not only survive but thrive in this bold new era of finance.
