Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Open Finance data adoption varies by country (but one thing is certain)
McKinsey & Company | By Chandana Asif, Tunde Olanrewaju, Hiro Sayama, and Ahalya Vijayasrinivasan | Jul 11, 2021
If open finance continues to accelerate, it could reshape the global financial services ecosystem, change the very idea of banking, and increase pressure on incumbents.
Banks hold a record of much of what we spend, save, and borrow—from electricity bills and mortgage payments to our weekly spend on fuel and coffee. Now, some of that customer data is being shared with third parties in a global movement known as “open financial data” (sometimes referred to as “open banking.”) Roughly half a decade in the making, it’s unlocking a wave of digital financial innovation—and likely disruption.
Brought on by a combination of government regulation and market forces, open financial data allows an expanding universe of players—both financial and non-financial—to access customer accounts and data in order to offer new products and services (all contingent on customer consent) (Exhibit 1).
See: WEF: Decentralized Finance: (DeFi) Policy-Maker Toolkit
For customers, open financial data affords greater flexibility in how their money is managed, allowing, for instance, better visibility of accounts and more convenient access to payments. (This paper focuses primarily on benefits for consumers; for more detail on benefits for all participants, including financial institutions, see our recent related report, “Financial data unbound: The value of open data for individuals and institutions.”) Still in its infancy, the movement has the potential to reshape everything from bank accounts, credit cards, payments, mortgages, small business loans, and even insurance policies.
Around the world, this trend is evolving in different ways. In the European Union, the United Kingdom, South Korea, Australia, and India, governments have mandated large banks to open up their vast troves of customer accounts to other companies, in a bid to stimulate competition (Exhibit 2). In the United States and China, it is a market-led movement, with companies establishing open-banking relationships among themselves. Singapore is using a blend of the two models.
The adoption of new digital habits and a dramatic movement toward online channels during the pandemic appears to have accelerated open banking. With so much more of their lives spent online, both consumers and small and medium-sized enterprises (SMEs) became much more open to fintech apps and other non-traditional financial products and services. They also habituated to greater levels of convenience, choice, and flexibility in their financial relationships. In just the first six months of 2020, the number of users of open banking–enabled apps or products in the UK doubled from one million to two million and grew to over three million as of February 2021. In the US, almost one in two consumers now use a fintech solution, primarily peer-to-peer payment solutions and non-bank money transfers.
See: Financial data unbound: The value of open data for individuals and institutions
We believe that if open finance continues to accelerate it could reshape the global financial services ecosystem, change the very idea of banking, and increase pressure on incumbent banks. According to the UK’s Financial Conduct Authority, a significant share of customers who are dissatisfied with their current accounts, earn uncompetitive interest rates on savings accounts, or pay higher mortgage rates do not change providers due to the hassle of switching or lack of visibility into better options. The ability for customers to better understand their full financial picture—one of open banking’s promises—could result in margin compression, as pricing and charges become more transparent. Banks may also have to contend with margin sharing, as payouts to digital platforms could play a far greater role in customer acquisition.
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