Over the past couple of months, we’ve paid particular focus to the concept of open banking. These discussion aren’t just theoretical anymore — some countries are taking steps to embrace open banking. Innovation, competition, and a thriving fintech environment are helping to shape open banking in the U.S. Without a strong regulatory mandate, U.S. financial services may need to work out standards among themselves, which could delay adoption.
EY recently published the Open Banking Opportunity Index which ranks 10 countries in their adoption of open banking by looking at adoption potential, consumer sentiment, innovation and regulation.
EY’s North American Financial Services Payments Leader Sean Viergutz joins us on the podcast to discuss the firm’s Open Banking Opportunity Index.
The genesis of the study
The Open Banking Opportunity Index was a collaboration between a number of people across EY. Starting a few months ago, there was a global effort to take a look at open banking — both as a concept and from a regulatory perspective. We wanted to understand the different factors that influence a market’s ripeness for open banking.
We chose several markets and ultimately, the result is a pretty insightful work that includes a stack ranking of who’s further along than others.
We began with a twofold thesis. The first was that certain markets were ahead of others. The other was about adoption — both from the consumer driving innovation and adoption of open banking, as well as regulation.
US placed fourth in the index
If you look at who placed first in the open banking index, it wasn’t a surprise. When it comes to the U.S., there’s no driving regulatory pressure, as exists in places like the U.K. So, you’re probably going to move slower than a country that has a mandate setting deadlines.
The U.S.’ number four ranking didn’t surprise me. I was pleased to see that in terms of innovation, we were leading and indexed much higher, which I believe to be the case given the fintech boom in the U.S.
Innovation for us focuses on the number of new startups, new dollars, businesses, products, and technologies hitting the marketplace. One easy way to do that is to look at how many fintech firms there are in the market. If you look at digitally active consumers, 50 percent of fintech service are in money transfer, 20 percent in insurance, 20 percent in savings and investment and 10 percent in borrowing.
Adoption is the other side of innovation
We also look at adoption around fintech and innovation. We wanted to see how innovative a marketplace is and how well people have adopted technology. I think the most important thing beyond innovation is the adoption component.
We also look at people’s readiness to consumer services and the trust that needs to exist for open banking to be pulled off. I think at the core of open banking, what will ultimately drive collaboration is trust — that your financial institution is being a good steward of your money and information.
If you look at mobile payments adoption in Africa, they’re lightyears ahead or away of where we are in the U.S. In Scandinavia, it’s common to make real estate transactions over the phone, while it’s not common in the U.S. There needs to be an infrastructure in place, everyone needs to agree on standards, and then you need trust. At the end of the day, the driver behind all of this is trust.
The move to digital
I think it’s very safe to say that legacy banks have all looked at their digital footprint and how to attract additional clients and deliver additional services via digital media. If a bank isn’t having that discussion, they probably have a strategy that won’t carry them through in the 21st century.
The one thing that remains true will be banks that have a deposit base will be at an advantage to offer reasonable terms to credit-sound individuals versus non-bank institutions that use wholesale or private credit.
Regulation’s role in advancing open banking
Just because you have regulation doesn’t mean you’re doing it right. The U.S. has taken a wait and see approach while the UK, Germany, and Singapore are ahead of us, Canada, Spain and Hong Kong.
Just because regulation exists doesn’t mean it’s the right regulation or that it will move the needle any faster toward open banking. That’s because regulation is generally about standardization and safety and soundness between institutions. It doesn’t mean the products that will be created will be more innovative. Open banking isn’t about regulation — it’s about collaboration in a financial services ecosystem.