Open banking, strongly aided by fintechs through application programming interfaces (APIs), allows financial institutions to reinvent operations to provide a better user interface (UI) and user experience (UX), and offer customers greater relevant access to their information.
By empowering financial institutions to gather considerable amounts of information regarding customer behavior, banks and credit unions can deliver more customized products and services to account holders.
This new delivery method is catching on throughout the financial services industry. The Business Research Company forecasts the global open banking market size to grow from $11.79 billion in 2020 to $15.13 billion in 2021 and the total market to reach $37.77 billion in 2025.
APIs, as a major open banking driver, have continued to gain relevancy and prevalence within the finserv community as they help enhance real-time banking capabilities with greater cash flow availability, reduced administrative obstacles and a more comprehensive view of personal finances.
Many financial institutions pursue help in areas such as mobile banking and payment channels, personal digital assistants, saving and investment tools, fraud mitigation, and artificial intelligence/machine learning capabilities (including chatbots). They may also seek to upgrade their digital banking platforms to provide real-time and same-day banking services, big data access through open banking to provide customers with personal and actionable insights; and robotic process automation to power existing processes.
Payments APIs Driving Open Banking
The Business Research Company also expects the rise in the use of online platforms for payments to propel the open banking market growth in the coming years. A new Juniper Research study found that the value of global payment transactions facilitated by open banking will exceed $116 billion in 2026, from just under $4 billion in 2021.
Rapid expansion with developing digital imbursement methods such as in-vehicle transactions and buy now pay later (BNPL) lending plus increased e-commerce use, improved broadband access, and the arrival of new tech enabled by fintechs and APIs figure to supercharge open banking payments as well.
For example, payment gateway APIs helped digital wallet platform Google Pay cross 1 billion transactions in August 2021. Additionally, in July 2021, PhonePe, a digital payments and financial services network used in India, which also uses a payment gateway API, set a new milestone by processing 1.5 billion transactions.
Juniper Research also found the value of global payment transactions facilitated by open banking will exceed $116 billion in 2026, from just under $4 billion in 2021. The study expects increasing user awareness of open banking features to drive an astonishing growth rate of over 2,800% over the next five years.
The Juniper Research identified open banking-facilitated payments, where payments transact directly from bank accounts, as a growing threat to the supremacy of cards within e-commerce. While card payments are well established, the study notes, leveraging permissioned access to bank accounts can reduce fraud risks due to strict Know Your Customer (KYC) rules. The research recommended payment providers partner with open banking API providers to reduce risks of disintermediation.
Juniper Research also found recent governmental support within the U.S. will stimulate the growth of open banking, and the market will require payments players to develop new capabilities quickly to capitalize.
Open Banking APIs Stimulate Growth
APIs are a strategic part of the frontline for a digital evolution in the banking industry. Many financial institutions know that to cultivate and expand their banking reach they need a strong partnership with fintechs through API banking.
According to Cornerstone Advisors’ “What’s Going on in Banking 2021” report, financial institutions use APIs to gather analytics, personalize their services, transfer funds and much more; and that half of credit unions, and many banks, in the United States have adopted APIs.
However, some industry experts suggest the open banking movement goes beyond data sharing, it is also about the functionality of core financial services. Especially since the way financial institutions handle tasks continues to progress as quicker, more effective and user-friendly procedures develop and as consumers discover better ways to accomplish their banking requirements.
One of the numerous benefits of an API infrastructure model is implementation ease, rapid integration, ability to scale and cost-effective for users to adopt. Developers design APIs as nimble and modular pieces that allows them to add layers to existing infrastructure quickly and seamlessly.
The versatile nature of APIs has also enabled a variety of players to offer them. Because many API providers are cloud-based and designed to mix-and-match, they support adoption virtually or physically.
Among some of the major players in this expanding global open banking market are Capital One, HSBC Bank plc, Banco Bilbao Vizcaya Argentaria S.A., NatWest Group plc, DBS Bank, Barclays, Lloyds Banking Group, Citigroup, Banco Santander S.A., Credit Agricole, NCR Corp., DemystData, Figo GmbH, Finastra, Jack Henry & Associates Inc., and MineralTree Inc.
Choosing the Right Fintech Partner
A number of banks have starting to work with, or invest in, fintechs to create more revenue streams or more personalized customer experiences. Some of them have plugged into online marketplaces where they can pick and choose products and services to integrate into their own platforms.
Juniper also anticipates acquisitions and partnerships to intensify so vendors can meet these evolving requirements quickly, rather than developing their own solutions over time. This will also create the need for financial institutions to find stabilizing technology and the right fintech allies.
NXTsoft, for example, provides a best-of-breed API connectivity solution for financial institutions and fintechs. Financial technology suppliers can close deals quickly with pre-built API integrations into many existing applications; and the capability to connect fintech solutions securely to banks and credit unions, using the strongest technology foundation and the most cutting-edge cloud-based technology; and following the uppermost industry and regulatory standards.
NXTsoft’s vendor agnostic OmniConnect Platform, the premier open banking marketplace for all API needs, uses cutting-edge cloud technology to connect fintech solutions to financial institutions, ensuring that NXTsoft clients have the most secure and reliable integration environment in the industry. OmniConnect provides the access needed to the financial institutions information, removing integration obstacles and providing a seamless connection between third-party API solutions and financial institutions’ core digital banking, item processing and financial systems.
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