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NatWest Group’s Vision for the Future of Open Banking and 3 Potential Ways Forward

Open Banking Report | Jul 4, 2023

NatWest Unmet potential of open banking report July 2023 - NatWest Group's Vision for the Future of Open Banking and 3 Potential Ways Forward

Image: NatWest commissioned report

NatWest report on open banking's untapped potential and pathways forward

  • Despite Open Banking's launch in 2018 and its use by over 7 million businesses and consumers, it has only reached about 10% of consumers and SMEs. Traditional payment methods still significantly overshadow Open Banking payments.  The report by Oxera, commissioned by NatWest Group, highlights the economic obstacles that are hindering the broader adoption of Open Banking and the development of innovative use cases beyond the regulatory mandate.

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The report identifies several key obstacles that are currently hindering the wider adoption of Open Banking

  • Lack of Commercial Incentives: There is a lack of commercial incentives for banks and other financial institutions to develop or enhance APIs (Application Programming Interfaces) that facilitate Open Banking. This lack of incentive is slowing down the development and implementation of Open Banking solutions.
  • Misalignment Among Banks: There is a lack of alignment among ASPSPs (Account Servicing Payment Service Providers – i.e., banks) on the benefits and potential of Open Banking. This misalignment can lead to inconsistent approaches and strategies, hindering the overall progress of Open Banking adoption.
  • Managing Trade-offs: There are significant challenges around managing trade-offs within the Open Banking ecosystem, particularly in relation to security and convenience. For example, while Open Banking can offer increased convenience through seamless integration of financial services, it also raises concerns about data security and privacy. Balancing these aspects is a major challenge.
  • Limited Scope of Use Cases: The current regulatory mandate for Open Banking may limit the scope of potential use cases. This limitation could be preventing the development of innovative applications that could drive wider adoption of Open Banking.
  • Traditional Payment Dominance: Open Banking payments are currently dwarfed by more traditional payment options like cards or direct debits. This dominance of traditional payment methods may be slowing the adoption of Open Banking payment solutions.

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Three possible routes to move forward

  1. Mandate Banks to Offer a Wider Range of Use Cases: This solution involves expanding the scope of Open Banking and requiring banks to provide the necessary data via APIs for free. This could stimulate the development of new use cases and applications, thereby driving wider adoption of Open Banking.
  2. Commercialized APIs: This approach encourages banks to expand Open Banking use cases through Premium APIs. By allowing banks to commercialize their APIs, they may have more incentive to develop and enhance their Open Banking solutions, which could lead to increased adoption.
  3. A Multi-Party System: The third solution proposed by the report is to enable multi-party systems to emerge that have a commercial incentive to grow the Open Banking ecosystem. This involves designing new, flexible frameworks for industry collaboration. By fostering a cooperative environment where various parties have a stake in the success of Open Banking, this could drive innovation and adoption.

The report notes that different routes may be optimal for different Open Banking use cases, and some may benefit from hybrid approaches. For example, mandating the development of an API, but leaving its commercialization to the banks themselves, or to a multi-party system.

Claire Melling, Head of Bank of APIs at NatWest Group:

“This report makes it clear that banks, fintechs and regulators need to work together to design new, flexible frameworks and commercial incentives that will support a far wider range of Open Banking use cases. By acting on the recommendations in this report, we can enable Open Banking to reach its full potential and, ultimately, deliver new and enhanced propositions that will improve customer choice and experience.”

Download the 44 page PDF report --> here

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