The vulnerabilities of the retail banking model are being amplified by three trends that are reshaping the competitive environment. Firstly, consumers want more digital offerings and superior customer experiences (CX). Secondly, Neobanks have taken away market share from traditional banks’ revenue streams. And lastly, shifting in scale advantages from branches to innovation.

The contemporary constellation of beliefs and practices around retail banking is not sustainable. Banks must reimagine themselves in a world driven by generative AI tools. To thrive in the new normal, banks must rearticulate their value proposition, by simultaneously simplifying and upgrading their customer experience (CX) and creating value through Linked Data and Open Finance.

Open Finance refers to the consensual access and reuse of client data across a range of financial services. This would enable third-party access for a wide variety of financial sectors and products using data lakes, new platform architectures, and data cooperatives, in line with data protection and privacy rules. It would be based on the principle that users of financial services own and control the data they supply and the data created on their behalf.

Open Finance nurtures competition by de-monopolising data and improving data flows, while also encouraging the emergence of competitive and tailored financial products. However, Open Finance, unlike Open Banking, is not regulated by any legal framework. This is of concern as it unlocks much more data than Open Banking.

Innovation can be propelled through the development of new products and services in the banking and payments sector and even beyond. Such arrangements can provide a secure, controlled, and expedient operating environment to allow banks and FinTechs or other third-party service providers to collaborate and develop innovative and integrated banking services. This in turn will improve client experiences while keeping up with international developments in the delivery of modern banking services.

Open Finance scaffolds a much larger scale than Open Banking. It allows authorised third-party service providers to access a wider range of client data from various accounts, including savings, pensions, investments, insurance, mortgage, and more. This data could be curated to offer personalised financial services and custom-made products.

In the UK, The Financial Conduct Authority (FCA) is the regulator for a collective of over 50,000 financial services firms and markets. Protected consumer data-sharing is a prime objective of the UK Government’s National Data Strategy. The FCA is unwavering in its commitment to deliver a Smart Data initiative by facilitating changes to the legislative and regulatory frameworks. Forward-leaning proposals for this framework clear an operational pathway for a phased Open Finance implementation by 2024.

Open Banking in the EU came into law as part of the Revised Payment Services Directive (PSD2) but savings, investments, mortgages, and pensions all fall outside its remit. This suggests that a PSD3 is necessary. The PSD2 allows existing and new service providers to offer their services within a clear legal framework while ensuring a high level of data security, privacy, and consumer protection. The EU will propose new Open Finance legislation in the second quarter of 2023, with the aim of promoting data sharing in the financial sector beyond payment data access. By 2024, the Open Finance Framework should be in place.

The US financial system is a behemoth that presents outsized challenges for an Open Finance framework. The market has over 10,000 financial institutions. The execution of bilateral data access agreements among data aggregators is an overwhelming logistical challenge.

The government of Canada has tabled proposed legislation related to data portability. In the case of the US, there are no specific federal regulations regarding data portability. The Dodd-Frank Act, Section 1 033, only states that “information shall be made available in an electronic form usable by consumers.”

Across Latin America, the rollout of Open Banking is progressing at different speeds in different countries. In Mexico, legislation states that a users’ personal transaction data can only be shared with precise authorisation. In Brazil, a prototype of central bank supervision, regulation, and authorisation of participating institutions exists. Large and medium-sized banks are required to connect to the Open Finance initiative.

Across the Asia-Pacific region, Open Banking is advancing with a variability of approaches across different nation-states. Some initiatives are market-led, some regulator-led, and others are hybrids. In Australia, Open Banking is part of a wider Consumer Data Rights regime that will be extended to other sectors such as energy and telecommunications.

With APAC’s largest population of underbanked citizens, India has the ultimate Open Banking prospect in the region. India has initiated an account aggregation framework. This is a financial data-sharing platform to ease the accessibility of financial data.

Bank Indonesia (BI), in 2019, put in place its “Indonesia Payment Systems Blueprint 2025,” laying out five key focal points: Open Banking; retail payment systems; financial market infrastructure; data; and regulation, licensing, and supervision. Saudi Arabia has published its Open Banking Framework and the UAE is making progress. Oman launched an Open API strategy, and Bahrain has adopted an Open Banking framework. The Dubai Financial Services Authority has introduced licences for Account Information Service (AIS) and Payment Initiation Service (PIS) activities. Saudi Arabia has mandated Open Banking as part of its “Vision 2030 Reform Plan”.