Open Banking Market

Market Overview

The global open banking market size was valued at USD 17,358.12 million in 2022. It is estimated to reach USD 122,066.93 million by 2031, growing at a CAGR of 24.2% during the forecast period (2023–2031).

Open banking is a banking service where bank account information is exchanged with third-party service providers via a secure, open Application Programming Interface (API). These APIs facilitate the secure exchange of financial data between parties. In addition, banks and third-party businesses use this financial data to build the applications and services they provide to customers. The exchanged information also allows designing more advanced and personalized applications that improve the customer experience levels related to financial services.

Open banking is an organized exchange of information between customers and financial service providers. Customers can more easily compare the specifics of current accounts and other banking services owing to the open banking platform. Furthermore, sophisticated applications may help customers, including small and medium-sized firms, make financial decisions. Open banking preserves the financial system's security and stability, empowering customers and accelerating opportunities for innovation. It is a framework that helps banks on their digital journey.

Highlights

• Banking and capital markets dominate the financial services segment
• App market dominates the distribution channel segment
• Europe is the highest shareholder in the global market

Market Dynamics

Global Open Banking Market Drivers

Increase in Adoption of New Applications and Services

Banks and third-party suppliers connected to open banking have created applications that assist users in obtaining consolidated account information from many financial service providers. The administration of client data and money is also made possible by the usage of these applications and services. These series also give users suggestions for better wealth management. Customers gain from digital services provided by open banking and other banking sectors. 34% of European adults use a banking app or bank's mobile website, according to a 2019 Forrester Research survey. Also, 64% of adults will use open banking in the upcoming years.

Furthermore, open banking is anticipated to give banks a brand-new, cutting-edge avenue for communicating with customers. Additionally, this is believed to provide third-party services a chance to improve their applications and services. This enables financial institutions to roll out applications and other cutting-edge services to enhance the open banking experience. Expanding new apps and services helps consumers choose a better experience and propels the market's overall growth.

Improved Overall Customer Engagement with Open Banking APIs

Platforms for open banking applications provide an exceptional opportunity to enhance client demands by giving customers simple access. The banking and financial company offers application programming interfaces (APIs) that let other parties and banks deliver innovative services, increasing the monetary revenue. Furthermore, a platform for open banking applications allows users to interact creatively with their financial data. The potential of open banking is also being recognized by banks, improving client engagement and experience services. Hence, to increase client engagement, open banking requires novel strategies. This is expected to fuel the open banking market's expansion.

Global Open Banking Market Restraint

Lack of Awareness Around Open Banking, Data Security, and Managing Threats Related to Security

According to the Open Data Institute survey, only 18% of the customers were aware of open banking and are still trying to figure it out. Further, 69% of the customers raised concerns regarding their banking data. There is a need to increase awareness related to open banking platforms, maintain transparency, and manage data security threats. Open banking platform needs more attention related to data security. An increase in fraudulent activities is expected to restrict market growth. In addition, the major challenge in the open banking platform is managing risk related to security. Many financial institutions and banks share their customer data in open banking worldwide through open banking platforms. The customer ID, confidential financial information of customers, patterns of search, and order history is analyzed and taken by the other competitor using an open banking platform. Therefore, the abovementioned factors are expected to restrict the market's growth.

Global Open Banking Market Opportunities

Increasing Collaborations Between Banks and Fintech Firms

The open banking market engages in collaboration and has opened the door to cross-border efforts. For instance, in May 2018, Citibank announced six strategic partnerships with leading businesses in Hong Kong that facilitate quick and convenient banking services, accelerating the development of open APIs in the city to address their consumers' digital lifestyle and further enable ease of customer operations. Additionally, India-based private lending institution SBM Bank recently teamed up with PayNearby to introduce various Open Banking solutions for their clients. SMB Bank and PayNearby have committed to a memorandum of understanding (MOU) to launch an "Open Banking network" and provide their customers with a broader range of financial services. Through this initiative, SBM Bank plans to provide various banking solutions through the PayNearby network. These collaborations to integrate services, enhance customer engagement, and facilitate personalized service offerings are expected to open new opportunities in the open banking market.

Regional Analysis

Europe Dominates the Global Market

Based on region, the global open banking market is bifurcated into North America, Europe and Asia-Pacific and LATAM.

Europe is the most significant global open banking market shareholder and is anticipated to exhibit a CAGR of 23.8% during the forecast period. The critical factor contributing to the growth of open banking platforms in Europe is the need to increase the security of online payments. Another aspect promoting regional market expansion is the government's directives for banks to compel the opening of APIs. The shift toward open banking is seen in the region, which is evident in various regulatory initiatives. For instance, the European Union launched a Second Payment Services Directive (PSD2). This directive requires that banks provide customer data to a third-party provider (TPP) through open APIs.

Furthermore, Europe is expected to account for the second-largest global open banking market share in 2018. In addition, credit card clients are subjected to multiple apps for different banking services. Open banking platform allows managing different cards and banks and offers quick account information checking facility to bank customers on one screen or dashboard. Therefore, the ease of use provided by open banking services is expected to drive the growth of the market in the region. Moreover, since the second payments system directive (PSD2) came into effect, the UK has been developing an open banking standard. Similarly, according to Open Banking Limited, several players joined the open banking ecosystem in the UK in January 2019. Therefore, this active participation in the country is expected to contribute toward the growth of the open banking market in the region.

Asia-Pacific and LATAM are projected to exhibit a CAGR of 24.9% over the forecast period. Open banking platforms in Asia-Pacific and LATAM region are expected to experience significant growth owing to a surge in several banks which invested in open application programming interface (APIs) management platforms. Asia-Pacific is expected to expand at the highest pace during the forecast period, owing to a large number of key players present in the Asia-Pacific and LATAM region. Furthermore, these key players' inclination toward adopting the European payment services directive, which requires banks to provide customer data to a third-party provider (TPP) through open APIs, drives the market growth in the region. In addition, according to Finestra, more than 100 banks will start offering open banking API in Japan in the next few years.

In addition, various countries have started working on launching open banking platforms. For instance, the Australian government announced an open banking framework in its 2018 budget. Similarly, the Australian government limited the application of the open banking framework to credit cards, savings, and transactions beginning from July 1, 2019, and mortgages by February 2020. The rise in the adoption of technology platforms and the surge in digitalization of the banking sector also fuel the expansion of the market in the region.

North America is expected to grow substantially over the forecast period. The factors expected to contribute toward the growth of the open banking market in the North American region include the anticipated quick adoption of advanced technologies and the presence of a majority of key players working toward the availability of open banking services in the region. For instance, according to American Express Company., 82% of banks in North America are actively tracking open banking strategies. Moreover, the financial industry group Afinis is producing open banking APIs. Afinis administers and facilitates private-sector operating regulations for Automated Clearing House (ACH) payments. For instance, the first three APIs under development by Afinis include getting transaction status, business-to-business (B2B) payments interoperability, and originating each payment. Therefore, these services are expected to launch during the forecast period, which is estimated to drive the market's growth.

Furthermore, open banking technology is expected to offer payment features for various social media apps, e-commerce apps, and third-party payment financial services, boosting the market's growth. In addition, faster adoption of digital payment services also aids in the market's expansion.

Segmental Analysis

The global open banking market is segmented by financial services and distribution channels.

Based on financial services, the global open banking market is divided into banking and capital market, payments, digital currencies, and others. 

The banking and capital market segment is responsible for the largest market share and is anticipated to grow at a CAGR of 23.3% over the forecast period. A capital market is an exchange where buyers and sellers can trade financial instruments, including stocks, bonds, and debentures. Furthermore, the buying and selling of these financial securities are carried out by participants such as individuals or institutions. Moreover, open banking services are used by the banking and capital markets to gather demographic data about existing and potential customers. Open banking is a relatively recent idea in the banking and capital markets. However, the adoption of open banking services in capital markets is expected to rise during the forecast period. For instance, according to a survey of executives at 100 large banks conducted by Accenture plc. in 2018, around 65% of respondents found open banking a future opportunity to attain market share. Moreover, 52% of the respondents identified open banking as providing a competitive edge to sustain in the market.

Service providers offer various value-added services such as rewards, partnerships, and loyalty points. These services are an effective strategy to gain a competitive advantage over other service providers. In addition, most banks provide customers with an ideal set of products and services according to their past purchases. Furthermore, competition for loyal customers is high in the banking sector, and many banks utilize loyalty programs to reach customers. Thus, banks carry out analyses to identify loyal customers. This analysis is based on the inspection of various parameters, such as the payment history of a customer, purchasing habits and patterns, and others. Therefore, open banking platforms are expected to ease the collection of customer-related information, which is anticipated to benefit the service providers in designing and personalizing the value-added services offered to a consumer.

Based on distribution channels, the global open banking market is segmented into bank channels, app markets, distributors, and aggregators. 

The app market segment owns the highest market share and is expected to exhibit a CAGR of 24.3% during the forecast period. Open banking applies to personal, small, and medium business accounts. It covers other online payment products, such as credit cards and e-wallets. Many applications request to enter account credentials and ask customers to grant permission to collect the data. The consumer can authorize third-party access without revealing bank login details through open banking API, another significant benefit offered by the applications using open banking APIs. In addition, leading global banks, including Lloyds, RBS, HSBC, and NatWest, have implemented open banking services for their customers. For instance, HSBC released an app named Connected Money in 2018, which allows customers to see a single view of all their UK current and savings accounts, mortgages, loans, and cards held across 21 banks, including Santander, Lloyds, and Barclays. This app provides suggestions to the customers where they can reduce their expenses, aiming to save money and further enhance customer experience.

Furthermore, other value-added features of the applications include timely and relevant notifications. For instance, using location-targeting, financial institutions can determine user interest and provide currency exchange rates and travel insurance offers.

Open banking provides data interfaces where the information can be accessed through a network via application programming interfaces (APIs). Open banking includes banking channels that offer financial and non-financial services for their customers. The bank delivers financial services to customers, such as third-party payments, fund transfers, bill payments, closure of loan accounts, opening bank accounts, and loan payments. The bank offers non-financial services to customers, such as requesting checkbooks, inspecting account information, and creating standing instructions. Mobile banking provides various services which are used to enhance the customer base. The primary benefits include receipt and payment of cash only. Some ancillary services banks offer to have balance inquiry and check collection.

Recent Developments

• March 2023- Open banking platform Tarabut Gateway collaborated with Bahrain-licensed cryptocurrency exchange Rain to enable clients to fund their cryptocurrency wallets more quickly and affordably. The agreement would allow customers to fund their accounts directly from their bank accounts without leaving Rain's platform.

• March 2023- Ukrainian Processing Center (UPC) and Tietoevry Banking, a prominent software and services company, established a cooperation to create open banking services in Ukraine. The partnership will help UPC become the leader in open banking platforms by providing Ukrainian financial institutions with a modern and standardized approach to accessing value-added services via the open API marketplace.