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Monday, June 08, 2020

How Open Banking will Enable Disruptive New Services

Banking relationships are important to financial service providers. Traditionally, a banking relationship could reasonably be expected to last a customer's lifetime. However, the introduction of online and mobile banking has fundamentally altered expectations, disrupting the legacy banking business model.

Measures to increase competition and make switching accounts easier have eroded friction, while the commoditization of services in the U.S. market has led to reductions in profit margins. Moreover, following the introduction of open technologies, APIs have begun to be a disruptive force in banking.

APIs enable different systems to share data and initiate transactions, which can simplify the creation of new financial service offerings. This has helped to facilitate the Open Banking phenomenon.

Open Banking Market Development

According to the latest worldwide market study by Juniper Research, the total number of Open Banking users -- who share data via Open Banking APIs to access new services -- will double between 2019 and 2021; reaching 40 million in 2021, that's up from 18 million in 2019.

The market study found that the ongoing COVID-19 pandemic is increasing the need for customers to aggregate accounts and gain insight into their financial health, thereby boosting momentum in Open Banking adoption.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardized market, with low barriers to entry. This contrasts with markets like the U.S., where a lack of central regulatory intervention is limiting the growth potential.


Juniper analysts identified that Open Banking can be both a threat and an opportunity for traditional financial service institutions. While Open Banking exposes user information and access to potential competitors, this threat is equal to all service providers in the market.

As such, Juniper recommends that the savvy established banks create innovative Open Banking services that provide user benefits and attract customers from their less innovative competitors.

"Banks must embrace Open Banking as a chance to capitalize on their ongoing digital transformation journeys and introduce innovative services enabled by Open APIs, or risk losing out to more digitally-agile competition," said Nick Maynard, lead analyst at Juniper Research.

Outlook for Open Banking Applications Growth

Juniper analysts have identified that digital payments will be critical to the emerging Open Banking ecosystem -- accounting for over $9 billion in transaction value by 2024. However, payments within this ecosystem are at an early stage.

The study uncovered that eCommerce is dominated by payment card networks, but there is potential for this role to be eroded over time by 'direct from account' payments. According to the Juniper assessment, card networks should offer Open Banking-enabled payment services to offset the risk of future disruption.

That said, it's unclear if traditional financial service organizations can be agile and keep up with the more nimble new fintech providers that have no legacy systems or business models to transform. Only time will tell, so we'll have to wait and see how this emerging market continues to evolve.