Open banking has created an innovation engine for next-generation financial experiences. From financial management and account opening to lending and payments, innovation is being driven by evolving technologies and increased demand for fast and simple digital financial services. The rapid development of open banking in markets around the world is creating a mainstream way for consumers and businesses to take control of and benefit from their own data. The simplicity and expanded connectivity of open banking services are changing expectations and introducing an unprecedented level of choice in how consumers how pay and get paid.

Open banking payments are growing at 365% per quarter in the UK and a recent Mastercard report found that more than 80% of consumers in the U.S. – and 90% of younger consumers – are already connecting their bank accounts to technology apps. As open banking and open finance continue to develop globally, consumer-permissioned data will help third-party providers like fintech companies and financial institutions innovate, gather feedback, scale faster and power smarter, more meaningful experiences. Adoption is only going to accelerate as network effects foster more benefits for consumers.

Open access to consumer-permissioned financial data will drive more competition and innovation
We’ve only just begun to scratch the surface of open banking innovation. Open access to consumer-permissioned data will fuel innovation and lead to improved financial literacy as well as more inclusive access to credit, personal financial management, digital wallets and payments services. Consumers will adopt a more modular approach to managing their money and adding value, promoting competition across the industry. More small business owners will use their financial data to determine how they do business, leveraging analytics to create meaningful, actionable insights. Open banking will help enable wider access to credit through lending decision-making, allowing economies to grow faster while combatting the challenges of the pandemic. As open banking matures, consumers will be more empowered to control and use their data for their own benefit, knowing it will be safeguarded with near real-time protection aligned to data principles that meet their evolving needs.

Democratized access to data will accelerate financial inclusion
By democratizing access to data, we can extend access to the digital economy to hundreds of millions of people. SMEs that have been historically underserved can improve their access to working capital – their most pressing need – through an accurate and transparent credit decisioning system based on data they agree to share. Open banking can be used to create a profile that more fairly represents an individual’s creditworthiness. Open banking’s impact on financial inclusion will garner increased attention, as companies work together with banks and fintechs to bring financial services to underserved communities.

A global open banking infrastructure built on trust will lead the way
Trust is critical in a successful open banking ecosystem. While open banking adoption is growing rapidly, global open banking platforms built on consumer-centric data principles will be necessary to continue driving the industry forward. The foundation of any open banking service is secure, consented access to relevant data. By leveraging the power of APIs, we can provide a more secure and convenient way to access data. Mastercard APIs offer high-quality, clean data connections that power applications and initiate real-time account-to-account payments.

Embracing the future today
With a data revolution upon us, tomorrow’s leaders must embrace the value and benefits of open banking today. Countries around the world are at different stages of adoption, some relying heavily on regulation and others being led by the markets. We believe the industry does not need to wait for this regulation and we encourage banks and other institutions to proactively enable access to wider data sets.

Open banking has unleashed a wave of innovation and we expect to see continued rapid growth as more markets uncover the best ways to capitalize on open banking access or enhance its capabilities. As the data and regulatory foundations for open banking are being built around the world, the network effects of data, financial institutions, fintech companies and consumers will continue to provide massive benefits to businesses and consumers alike.

[The author of this article, Keith Douglas, is Executive Vice President, Expansion Open Banking at Mastercard]

Helen Child, Founder & CEO, Open Banking Excellence