Why Fintech (& Open Banking) is key for the future of banking
Boston Consulting Group, the leading strategic management consulting firm, just released its latest FinTech report. The report covers key topics such as Industry Fundamentals, FinTech Revenues, B2B2X (Business to Business to any type of end-customer)’s opportunities, as well as API usage and Open Banking.
APIs, Open Banking & collaboration
FinTech which has been around for about two decades, thanks to the rapid adoption of transformative technologies and applications, literally has had an important impact on the daily lives of billions of people.
According to the World Bank Financial Inclusion Project, about 54M of adults are unbanked and 357M are underbanked in Europe. “Open Banking 2.0 – or API-Based Open Connectivity” as described in the report, has the potential to create seamless modular access and permit the standardization of interfaces for banks, corporates, and governments. The aim is to facilitate collaboration between financial institutions around the world. As highlighted by the BCG experts, “APIs could also be used to amass data from various unrelated sources (…) to create highly accurate risk assessment for use in credit underwriting, fraud detection, credit scoring, insurance underwriting and the like”
Fintech in Europe: an ever-growing development supported by regional expansion
According to the report, and as the world’s third largest financial institutions (FI) market, “the UK and EU should witness a major FinTech growth through 2030 (x5 compared to 2021) led by payments sector”. The experts add: “regulators are relatively forward-looking, for example, with open banking, open finance, and passporting.”
The regional FinTech sector expects to post a revenue CAGR (Compound annual growth rate) of 21% in the runup of 2023, supported by continued growth of “Payment-Plus” (ecosystems of value-added services on top of traditional payments infrastructure), embedded-finance and B2B players. Furthermore, Open Banking should increase the creation of new products and service, contributing to the sector’s growth.
According to the Global Fintech Report, and to drive future growth, “regulators will need to proactively manage by developing and strengthening policies that protect consumers, without stifling innovation, such as Europe which is the leader in open banking. The way of transferring information from one FI to another needs to be easier and it can be achieved in two ways: by regulatory push or by innovating into a use case that truly unlocks the value of open banking”.
The BCG experts also explain that“regulators should also support faster payments and implementation through additional licensing – or at least the provision of a roadmap for FinTech’s with clear requirements for obtaining a banking licence”. It has been reported that countries with faster payments and implementation have recorded considerable innovation in money movement.
Finally, they also note that clear data-privacy and storage guidelines (similar to the GDPR, guidelines in Europe) are becoming more and more necessary worldwide in order to protect consumers and fintech’s alike.
New technologies and their future impact
The emergence of new technologies has created “a need for next-gen infrastructure that can facilitate difficult transactions in a more digital world”. That type of infrastructure will allow the FI to share data and services in a clear and secure way, resulting in greater innovation and improved customer experience.
For instance, Digital Public Infrastructures (DPI) enables to reduce costs for all stakeholders in the ecosystem and enables innovation to promote economic expansion. The report notably underlines that “building such so-called digital public goods or DPIs will thus become essential for creating a level playing field that enables all relevant stakeholders, both large and small, to interact seamlessly”
Moreover, numerous innovative technologies are appearing in FinTech’s arena for the first time or strengthening their presence: Generative AI, API-Based Open Connectivity, DLT (Distributed Ledger Technology), etc., have an impact that will likely be felt by society at large and so for all types of financial services players.
Source: Boston Consulting Group
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