In 2024, the financial industry is undergoing a significant transformation as traditional institutions and emerging technologies converge to create a more innovative and customer-focused ecosystem. With Open Banking rapidly becoming a key catalyst here are five trends shaping the industry right now.
1. Increased collaboration between banks and fintech companies
In 2024, we can expect to see more partnerships between traditional banks and fintech companies as they work together to create innovative open banking solutions for customers. Earlier this month, for example, HSBC struck a deal with Revolut to leverage the fintech’s advanced digital banking platform to enhance HSBC’s customer experience. By integrating the technology, HSBC plans to offer more innovative and personalized financial services, including streamlined money transfers, budgeting tools, and real-time spending insights. Expect this trend of traditional banks collaborating with fintech companies to become the standard as they look for ways to create more comprehensive and user-friendly banking solutions.
2. Expansion of Open Banking regulations
As Open Banking continues to gain traction, we can anticipate the expansion of regulations to ensure the security and privacy of customer data. This will help to build trust among consumers and encourage further adoption of open banking services. In May, the European Union introduced the Open Banking Directive 2 (OBD2), a regulation that builds upon the original PSD2 framework, providing stricter data security measures and enhanced customer consent protocols. What is important is its focus on ensuring that customer data is securely managed and that customers have greater control over who can access their financial information. Such regulations are crucial for fostering trust among consumers, in turn, promoting the wider adoption of open banking services.
3. Personalised financial services
With the wealth of data available through open banking, financial institutions will be able to offer more personalized services to their customers. This could include tailored recommendations for saving, investing, and budgeting based on individual financial goals and spending habits. Through open banking banks can more easily analyse transaction data to provide personalized budgeting advice, suggesting ways to save on routine expenses or even identifying patterns that indicate potential financial issues.
4. Growth of API marketplaces
In 2024, we will likely see a proliferation of API marketplaces where banks and fintech companies can discover and connect with third-party providers to enhance their open banking offerings. This will lead to a more interconnected financial ecosystem and drive innovation in the industry. In March, Visa launched its new API marketplace, Visa Open Connect, a platform that offers a wide range of APIs that enable banks and fintech companies to access various financial services, including payment processing, fraud detection, and customer authentication. Visa Open Connect aims to foster innovation by allowing developers to easily integrate these APIs into their applications, thus streamlining the development of new financial products and services.
The importance of this API marketplace lies in its ability to create a more collaborative and interconnected financial ecosystem, enabling financial institutions to more easily enhance their service offerings and improve customer experience.
5. Rise of decentralized finance (DeFi)
The concept of decentralized finance (DeFi) is gaining momentum in the open banking space. In 2024, more decentralized applications and platforms are leveraging open banking APIs to offer innovative financial services outside traditional banking institutions. DeFi’s popularity is being driven by its transparency, accessibility, efficiency, and encouragement of innovation. In January, Aave, a DeFi lending platform, integrated with open banking APIs to enhance its lending and borrowing services, offering more personalized and accurate risk assessments for better loan terms and interest rates.
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