TREND AND IMPACT

  • Open banking is reshaping finance in the UK, and the world is up next. Regulatory efforts are fueling open banking in the UK, and it's transforming retail banking, reshaping incumbents' relationships with customers, and easing entry for fintechs. Efforts in the UK are reverberating throughout the world, with regulators across every continent taking action of their own.
  • The revenue-generating opportunities presented by open banking are significant, but the consequences of inaction are more serious for incumbents.
    • Opportunity. In the UK, the new revenue potential generated through Open Banking-enabled small- and medium-sized business (SMB) and retail customer propositions stands at £500 million ($700 million) in 2018, per PwC — Business Insider Intelligence expects that to grow at a 25% compound annual growth rate (CAGR) to reach £1.9 billion ($2 billion) by 2024.
    • Threat. Meanwhile, we expect the revenue under threat for UK incumbents to swell to £6.5 billion ($8.3 billion) by 2024, up from £1.8 billion ($2.4 billion) in 2018.
  • Despite the financial incentives to act, many incumbents are struggling to determine the best path to monetization. In fact, some incumbents aren't even sure what their options are: For instance, when asked if there will be opportunities to monetize open banking, almost half (44%) of senior decision-makers at UK banks said they don't know, per Fiserv data shared with Business Insider Intelligence.
  • In response, this report outlines a range of strategies at incumbents' disposal when it comes to monetizing open banking.
    • Develop monetizable APIs. These APIs can solve vexing pain points for both corporate and SMB clients, like streamlining relationship management for corporate treasurers.
    • Create revenue-sharing ecosystems with third-party providers (TPPs). Such marketplaces can offer customers a range of third-party-developed services and products, and banks can profit on a subscription or referral basis.
    • Leverage banking infrastructure to offer Banking-as-a-Service (BaaS). The most advanced banks can commercialize their know-how by providing core banking services in a white-label form to fintechs, other financial services firms, or players from other industries.

RECOMMENDATIONS

  • Develop a framework to identify the appropriate open banking strategies given specific company needs and circumstances. Banks must be intentional in their pursuit of open banking strategies, as approaches are not universally valuable. To that end, decision-makers should start with some basic strategic questions:
    • What potential business gain does a particular strategy offer? Value [...]