The global Open Banking market, valued at USD 19.14 billion in 2022, is expected to grow at a Compound Annual Growth Rate (CAGR) of 25.9 and touch 48.13 billion in 2026.
The growth of Open Banking worldwide and in India, too, can be attributed to the surge in the use of online payment platforms. As per the National Payments Corporation of India (NPCI), UPI is processing more than 5.8 billion transactions monthly as of June 2022, amounting to more than $130 billion.
Improved internet connectivity, a rapidly evolving payment ecosystem and the growing acceptance of Application Programming Interfaces (APIs) have worked as catalysts in the growth story.
Let us find out what 2023 holds for Open Banking and how it will impact consumers.
An Overview of Open Banking
Open Banking is an innovative and evolving concept in consumer banking that can play an integral part in facilitating financial inclusion. Financial institutions can share data with customers’ consent with third-party developers and firms to develop applications and services. Case in point, the rapid growth of many fintech firms in the last few years is tied to the rapid development of the ecosystem.
While it allows customers to have more control over their finances, Open Banking breaks down barriers to data sharing as more users get access to data through application programming interfaces (APIs).
Also, third-Party Providers (TPPs) can access consumer data, financial transactions, and other data from banks and non-banking financial institutions using these APIs. Presently, the number of TPPs is increasing rapidly and improving the end-user experience.
5 Key Emerging 2023 Trends in Open Banking
Open Banking is well-poised to stay in vogue and gain popularity this year. We have listed below some trends to watch out for:
1. Will Nurture The Growth of Neobanks
Neobanks are looking at tapping Open Banking due to the multiple advantages it offers to fuel their growth and provide better products and services to consumers. Neobanking in India had a $48 billion market size in 2022; it is all set to reach $183 billion by 2030.
Neobanks offer services like digital banking and multiple money transfers and investment options. They focus on affordability, accessibility and smooth customer experience through an uncomplicated user interface, which makes them accessible to those without any prior technological knowledge.
Therefore, the goal of Open Banking and Neobanks is intricately linked, and both can mutually benefit from cooperation and promote innovation in the financial market.
2. Role of Big Data Analytics
This is also an opportunity for banks to collect, manage and share massive financial data with TPPs to simplify and automate the entire data-related processes.
Each financial transaction generates real-time data that offers valuable insights to understand consumers and overall social trends. Analysing this data could lead to informational discoveries that can craft solutions to tackle social and financial problems.
Thus, the combination of big data analytics and Open Banking with any customer-centric industry could result in the emergence of next-level service offerings.
3. Will Help Serve SMEs Better
Small and medium enterprises (SMEs) are the lifeline of an economy. Despite this, the SME segment remains underserved by the banking system.
Open Banking could help Non-Banking Finance Companies (NBFCs) and banks serve this sector in the best possible way. It can help fintech companies launch innovative digital offerings for next-generation SMEs.
This may accelerate the finance application process by leveraging data already gathered by SMEs through their shared banking activity. It will change how SMEs bank and transact. Many businesses may also prefer open banking solutions for improved financing and payment options.
4. Increase in Access to Credit Through Open Banking
The current lending system relies on slow and expensive due diligence processes for loan applications, which makes costly credit the only option for borrowers. People who do not have credit cards or cannot get any loans can benefit from this.
Open banking will give access to personalised loans to a vast segment of customers previously left out of the banking network. Also, it provides a tech-enabled option to quickly and effortlessly review financial data and make risk assessments. This streamlines the process of checking an applicant’s creditworthiness and helps reduce costs and offer lower rates based on the risk profile.
Therefore, Open Banking can help make banking fairer, less costly and more inclusive which will have a cascading positive impact on the overall economy.
5. New Use Cases Will Steer Open Banking Growth
As Open Banking is in its nascent stage, its use cases are still evolving. The initial products developed focused on lending; however, newer use cases are emerging in areas like personal finance, insurance and payment methods.
A study by Juniper Research predicts the development of new use cases will propel this sector to fulfil its potential. A promising new use case is using Open Banking payments to pay taxes as introduced in the UK. As it expands beyond the UK, it is expected to account for more than $59 billion in transaction values by 2027 globally.
Other potential use cases include full integration within eCommerce marketplaces, which can further develop this market and increase the user base.
To Sum It Up
Open Banking holds immense potential for the entire financial ecosystem and goes beyond integrating with partners and APIs. New business models will keep emerging, and all stakeholders of the modern financial ecosystem will need to complement each other rather than compete and work towards customer satisfaction.
Finezza, with its innovative solutions, can help you manage the entire lifecycle of a loan application process. We offer a suite of modern products like a Loan Management System, Bank Statement Analyser, etc., to simplify credit processes. The platform also provides analytics services for facilitating more data-driven decisions.
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