Open Banking

Open Banking will play an essential role in the modernization of payments infrastructure worldwide, powering Instant Payments and Account-to-Account transactions. It’s up to you to ensure your organisation is ready for the switch to Open Banking, and RedCompass Labs is here to support you.

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What is Open Banking?

Open Banking will define the next generation of financial services. With the customer’s consent, third-party providers (TPPs) can access that person’s banking data via APIs, sharing it freely with other banks around the world.

With access to customer data from around the world, banks and financial institutions will find it easier and faster to not only complete transactions, but innovate collaboratively, and offer customers greater freedom and choice over how they manage their finances. In short, Open Banking will democratise global payments infrastructure and level the playing field for all parties.

$57 Billion

Total value of transactions processed through open banking worldwide in 2023.

+50%

YOY worldwide customer growth – an estimated 132 million customers already utilise open banking.

+10x

Estimated increase in open banking transaction value – up to $580 billion – by 2027.

Open Banking Benefits

With seamless data sharing between financial organisations, your customers will enjoy the full benefits of initiatives such as Instant Payments, while also benefiting from enhanced security. While the benefits of open banking will be mainly felt among customers, banks and payment services providers (PSPs) will also feel the impact in areas such as these.

Empowering Financial Technology

With access to a global wealth of data, fintechs can introduce new tailored products, more robust and streamlined platforms, and a greater range of personalised experiences.

Greater Efficiency

Integrating with third-party applications enhances operational capacity and speed, enabling faster product launches, improved platform performance, better customer outcomes, and more streamlined internal decision-making.

Higher Customer Satisfaction

As the full scale of open banking becomes apparent, your customers will start to benefit from new and highly-tailored services. Think interoperable, instant payments.

Harness the Power of Data

Open Banking will enable faster and more accurate decision making in every field, from operations to marketing, product development to customer services.

Instant Payments Payments Interoperability

How Does it Work?

Open banking involves the democratisation and interoperability of APIs allowing banks to access customer data from around the world. But reaching the point of true, universal open banking will require several steps.

Standardisation of APIs

In order for banks and financial institutions to communicate effectively, they must ensure their APIs are consistent and interoperable. This will mean adhering to the ISO 20022 global messaging standard.

Regulatory Compliance

As banks start to operate globally, they must also become aware of, and compliant with regulations worldwide. Customers must opt-in to have their data shared, and that data must be transferred securely, transparently and in line with consumer protection laws.

Data Protection

Data must also be protected from malicious third-parties. Customers should expect Strong Customer Authentication (SCA) and Multi-Factor Authentication (MFA) to verify their identities and ensure the data they are transmitting is legitimate, while banks must ensure data is encrypted and stored in line with GDPR.

Infrastructure Upgrades

After ensuring APIs are standardised and secure, banks must then ensure their infrastructure is capable of adapting to open banking. This will mean the implementation of middleware to facilitate data exchanges and handle API requests. These systems must be robust, remembering the pressure that instant payments will place on traffic.

Image of people crossing a busy street in Europe

The scale of the opportunity

With open banking, institutions will be able to create a customer-centric model for financial services worldwide. With more personalised experiences, a greater range of products and services, and faster, more secure services, open banking will change the way we bank for good.

At the same time, banks will experience a new era of competition. With innovation coming thicker and faster, the race will be on to create the best products and services – again, with the customer as the key beneficiary.

Make no mistake, open banking presents one of the greatest opportunities in the history of finance. But capitalising on these opportunities will require your organisation to move with boldness and agility.

By 2030

Open banking market is expected to reach $135 billion worldwide, growing at a CAGR of 27.4% between 2024 and 2030.

Open Banking: the new standard

Spearheaded by PSD2 and the UK government’s push to modernise its banking infrastructure, the United Kingdom has emerged as an early leader in the world of open banking. Despite having only implemented open banking in 2022, the UK has already shown considerable uptake, leading to a new renaissance of innovation and consumer-mindedness.

Driven by favourable regulation, robust regulation, and an already strong market of fintechs, the UK is poised to become a global leader in open banking and sets a strong precedent to other markets considering the potential of the opportunity.

11.3 million

Open Banking users in the UK as of July 2024, representing 14% of the country’s population and 17% of small businesses.

19.5 million

Successful payments made through open banking in July 2024 alone.

£450

Average transaction value of open banking payments, meaning over £8.7 billion transferred every month.

Key challenges for banks

Adapting to open banking requires much more than implementing new APIs. To take advantage of the opportunities of open banking, banks must develop a fully interoperable platform, navigating the complexities of a new regulatory space and upgrading legacy systems along the way – all while ensuring a continuous service. Think of it as changing a lightbulb while keeping the lights on.

Technological Integrations

Adapting to open banking is one step in the development of a fully interoperable system. However, with many banks still operating on legacy systems, upgrading, replacing and maintaining infrastructure may prove costly and complex.

Regulatory Compliance

As well as introducing banks to new territories, open banking will reshape the global regulatory space. Banks must be prepared to adapt, and adhere to new regulatory environments, ensuring their systems are flexible to adapt to changing compliance frameworks in the future.

Fraud Prevention & Cybersecurity

A new renaissance of data sharing between banks and third parties also raises the risk of fraud and data theft. Banks must ensure that their systems and APIs are secure and compliant, implementing such measures as encryption, tokenisation and multi-factor authentication, while also staying compliant with data protection laws such as the GDPR.

Business Transformation

Open banking will change the way we bank forever. As well as implementing the technology, your organisation must be prepared for radical operational change. From managing new relationships with third parties, to training staff to manage an open banking platform, the process will be long and complex.

How can we help?

For over 20 years, RedCompass Labs has helped banks in over 20 countries to manage enterprise-scale transformation. With over 140 people, including world-leading technical experts, we have the expertise and the experience to help your organisation adapt to an interoperable future.

Global payments experts