Axway Open Banking

2021 set to put open banking into the fast lane

Open Banking trends

Data on open banking adoption around the globe is now available for the final quarter of 2020, and one thing is clear: 2021 will be a bumper year for open banking.

The Open Banking APIs State of the Market Report 2020, sponsored by Axway, shares the trends of 2020 from the past three years and gives clear signals of what to expect in 2021.

Open banking trends

COVID-19 created multiple challenges across our societies and economies globally throughout 2020. In business, it encouraged a new resilience, in which many companies recognized the need to speed up digital transformation efforts.

But in traditional sectors like banking, there was also a growing recognition that in the future, no one will go it alone: businesses will need to leverage relationships with external partners to diversify product offerings and extend to new customer segments.

And far from draining revenue, these new relationships will actually offer new business models (and monetization) opportunities.

Here are three clear signs from the 2020 data that prove that 2021 will see open banking strengthen even further:

  • New relationship approaches (which will drive business models) are now in place for open banking.
  • Banks are extending their API product range beyond the regulatory requirements.
  • There are now bottom-line quantifiable benefits of open banking to bank revenues.    

1. New business models are now in place

Previous years showed some reluctance by banks to move to open banking — in which banks open APIs to external partners such as fintechs so they can build new financial products and services. 2020 showed some consolidation of external relationships and introducing broader business models.

Photo courtesy of Mark Boyd

Banks now have a range of business model approaches they can take when building relationships. Within each broader approach, they can then apply a more nuanced set of pricing and revenue models. These four categories allow banks to organize how they will approach their external relationships.

2. There is growing diversity in banking API products

In many jurisdictions where regulations exist, banks must open up account information, payment functionalities, and product catalogs as APIs. Banks that wanted to drag their feet into the open banking ecosystem would create APIs only as required under the regulations.

However, recent regulatory changes, including moves in the UK and Europe to introduce open finance regulations, and open banking approaches in Brazil and Australia that require a more extensive range of products to be available via APIs, are encouraging banks to rethink what capabilities they expose.

The clarification of business model and relationship opportunities from avenues like banking-as-a-service and the effects of COVID-19 which have also pushed banks to reconsider their digital offerings to customers are also having an impact.

Photo courtesy of Mark Boyd

By the end of the year, there were 3,496 open banking API products available globally, with 36% of these being API products that go beyond the regulatory requirements. These APIs will enable a broader range of products to be created by fintechs, and be used in automated workflows by existing bank customers, thus driving the use of Open Banking in 2021.

3. The benefits to banks are quantifiable

Over the past several years as open banking has been introduced, there has been a movement that will bring significant benefits for bank revenue and cost efficiencies from moving to API-enabled infrastructures and platform models.

In 2020, banks started sharing some of their evidence of the revenue successes they were achieving from moving to APIs. In some cases, this included the ability to charge for API call, increased customer account creation, and the ability to charge processing fees on an increased volume of transactions being channeled by APIs.

Photo courtesy of Mark Boyd

Now that banks are sharing data points on the successes they are generated from a platform play, much of the previous reluctance — specifically around losing the central relationship with the banking customer — will begin to fall away.

COVID-19 has forced many banks to reallocate budget away from the branch and in-person infrastructure and the promises of vaccines will not see a simple return to the past.

Instead, banks have spent the year reorienting towards more digital-first approaches and now with the benefits of APIs and open ecosystems becoming clearer (and quantifiable), 2021 is set to move open banking into the fast lane.

Download the Open Banking APIs State of the Market Report 2020, sponsored by Axway for global data summaries, regional snapshots, and a closer look at some key drivers and enablers that will shape open banking in 2021.