The Open Banking revolution has begun: Transforming the financial market, one standard at a time

Open Banking is rapidly changing the financial landscape. By allowing banks to securely share their data with third party providers through open standards and APIs, Open Banking has given consumers much greater control over their finances, increased technological innovation, and ramped up competition within the financial marketplace.

At present, more than 2.5 million people across the globe use Open Banking to move, manage, and add more value their money, with the ecosystem growing at an average of 1 million new users every 6 months1. But what trends have triggered this revolution? And what challenges do financial service providers face when implementing their Open Banking strategies?

Based on the recent “Open Banking & Open Finance modernisation, with a twist” webinar, this post will provide answers to each of the questions above, along with key insights on how Identity and Access Management solutions like Okta can help both secure and accelerate Open Banking adoption.

What factors are driving the Open Banking revolution?

While the first trial run Open Banking dates back as far as 40 years, its eventual implementation in January 2018 was driven by three primary motives:

1. Evolving customer expectations

Increased demand for digital and mobile banking services has given rise many technological advancements within the financial sector. Today, people expect to have greater accessibility to and visibility of all their financial data in one place, and Open Banking is the next logical step towards satisfying those demands.

2. The rise of FinTech and the alternative finance economy

As the of popularity of and investment in alternative financial services continues to soar, traditional banks must now contend, not only with each other, but with giant technology companies looking to take over the market. This has placed further pressure on banks to modernise their offering and deliver more desirable digital services to their customers.

3. Shifting data ownership and compliance regulations

As GDPR and other regulations continue to disrupt how banks use their customers’ data, financial institutions must open their walls and allow for more transparency for both their customers and their competitors.

What does Open Banking hope to achieve?

At its core, the implementation of Open Banking was brought to disrupt the monopoly of traditional closed-wall banking systems and modernise the industry by:

• Increasing competition within financial ecosystems

  In many regions, traditional banks still have majority control over the market. Open Banking aims to democratise disrupt this monopoly and allow more players to compete. By creating this competitive financial ecosystem, Open Banking drive prices lower and delivers more benefits to the customer.

• Driving digital innovation and adoption

  Along with competition, embracing digital innovation is essential for success in the future of finance. By leveraging open standards and APIs, Open Banking can help financial organisations quickly leverage the benefits of modern financial technologies, allowing them to offer new kinds of products and services that don’t exist in the traditional banking world.

• Creating more transparency for customers

  Instead of profiting from spreads and opaque fees alone, regulators now believe modern banks should also be competing on value. With Open Banking, customers can look at every product they have in a way that's easy to compare and see exactly what they’re paying for.

What challenges does Open banking present?

During the webinar, Eyal Sivan, Axway Head of Open Banking & Podcast Host of Mr. Open Banking, listed five key challenges all financial institutions must address when implementing their Open Banking strategies:

1. Tech standards must be established

Before banks can enter the Open Banking ecosystem, they must first build a strong foundation of common open standards that ensure their data can be securely shared with every third-party provider included within that ecosystem.

2. Data privacy and data function must be balanced

While giving users greater control over how their data is used and shared is essential, banks must also make sure that security, portability, and utility are all there to allow this innovation to flourish as well.

3. Government and market must cooperate

Though there’s much debate on whether to take a market driven approach or a regulatory approach to Open Banking, the truth is that there must be equal representation on both sides. And banks must find a way to balance that scale.

4. Incumbents must learn to open the gates

To succeed in the digital age, banks must break down their data silos and open the gates to the new Open Banking ecosystem. Only then can they truly know their customer and deliver the personalised services they’ve come to expect.

5. Understand that the shift is inevitable

The move towards Open Banking, Open Data, and eventually Open Everything is already well underway. It is happening over the world as consumers demand better financial services that realise the true value of their data and how it can be used to improve, not just their finances, but every aspect of their personal lives.

How can Okta accelerate Open Banking adoption?

To help overcome the challenges listed above and accelerate Open Banking initiatives, many financial organisations now trust in Okta to:

• Simplify and secure API access management

  Okta’s solution provides a complete OAuth 2.0 standard compliant API Authorisation server with an identity-driven API access policy engine. This allows banks and other financial institutions to deliver on the potential of Open Banking while keeping their banking APIs secure.

• Secure customer transactions and maintain compliance

  With Okta’s MFA and Adaptive MFA solutions, financial institutions can easily secure their customers’ transactions with strong authentication, ensuring Open Banking compliance along every step of the journey and significantly reducing the risk of fraud.

• Create seamless digital banking experiences

  While Open Banking requires that every user must give consent, high friction can damage the customer experience and slow down adoption. By adding Okta’s secure digital identity layer, banks can provide more seamless login experiences and manage user consents more effectively.

To better understand how Okta can help improve digital banking experiences and accelerate Open Banking adoption, please contact one of our friendly experts.