<Report

Open Banking
Title>
Open banking
<Report Subtitle>
will drive profound business
model change

MarketLine Theme Report

Report Code: <Code>

ML00026-045

Published: <Month YYYY>

November 2021
 Executive Summary

Open banking will drive profound business model change

Open banking is a clear global trend, but paths and progress vary markedly depending on whether openness is delivered top-down, bottom-up,
or with some combination of the two. It’s not just the style of intervention that differs, but the scope also, with substantial variations evident
regarding which entities and products they apply to, what information is accessible by third parties – such as transactional information, product
data, or aggregated statistics – and whether operations, such as account-to-account payments or contracting new products, are included.

Open banking reinvents the notion of banking itself

“
Open banking is a clear However, wherever open banking does happen, it presents the same opportunity: multiple routes to market. Open banking creates a
global trend, but paths multidimensional view on what the core value in banking is. No longer just interest-bearing products, but data, technology; and not just to end
users, but to businesses, new entrants, and other banks. The ability to disaggregate component pieces of value, and to distribute them in
and progress vary multiple forms, becomes a core competency in the open banking era.
markedly depending on
whether openness is Significant levels of disruption could occur
delivered top-down, Leading banks will operate in multiple modes concurrently: direct-to-consumer (D2C), with open banking-enhanced onboarding, credit
bottom-up, or with some assessment, etc.; as-a service, by isolating pieces of otherwise fixed-cost infrastructure; marketplace seller, where providers distribute their
products through third partners; and platform owner, the inverse of the former, whereby incumbents will offer best-of breed products across
combination of the two. their entire ecosystem – and not just with financial products but a hub to support broader life goals. These partnerships will cut across
traditional vertical lines and blur boundaries between products, providers, and processes, driving new levels of disruption.

There are my clear advantages to the development of open banking

There are clear tech dependencies on delivering these endpoints. Incumbents will need agility and flexibility in underlying infrastructure to pivot
to new opportunities as they evolve. By connecting across industries and provider types, technologies such as AI, the cloud, and robotic process
automation will help incumbents remove cost and friction from customers’ day-to-day interactions, offering much greater levels of convenience
and more predictive, personalized, and contextual banking.

2
 Open banking players are broad

Players in open banking are

varied in size and scope
The open banking ecosystem is in a
state of flux, with the ultimate
winners and losers far from
determined. Various types of new
entrant are actively pursuing this
opportunity under a variety of
different local market conditions.
Adjacent verticals are deeply
involved through various embedded
finance propositions.
Incumbents have critical roles to
play in the ecosystem, even if they
have a less direct customer
relationship. Ultimate competitive
conditions will be determined by
which firms can best understand
key gridlines of change here and
reimagine their propositions, and
their business models, accordingly.
Here, we map key players to key
areas within the open banking
ecosystem.

3
 Promoting innovation and competition

Open data promises new levels of convenience and personalization

Financial services regulators around the world are increasingly concerned with promoting competition and innovation in banking, reducing
barriers to entry, and empowering consumers. The provision of banking services in most developed markets has traditionally been dominated by

“
Financial services a few large incumbents, leading to a landscape characterized by inertia and a lack of dynamism. New entrants have found it difficult to break
regulators around into the banking market, and as a consequence, competition has been limited, leading to sub-optimal outcomes for consumers. In response to
this situation, financial services regulators around the world have tried various initiatives to boost competition and consumer choice. Of all the
the world are strategies that are being employed to achieve this, perhaps the most significant and far-reaching is open banking.
increasingly
Here, consumers have the power to share their account and transaction data with chosen third parties. The favored method for sharing banking
concerned with data is through APIs, which are simply sets of instructions that allow an IT system (such as one belonging to a bank) to communicate with
promoting another IT system (such as one belonging to a fintech provider). In order to minimize compatibility issues, APIs are typically designed around
competition and common standards governing the security, formatting, transmission, and accessibility of data.
innovation in There is now a clear global trend toward open data and data portability
banking, reducing
barriers to entry, As parallel developments occur in adjacent industries, there is growing recognition that by increasing the perimeter of in-scope data and
products – not just from open banking (current accounts, savings, some lending products) to open finance (mortgages, investments, and
and empowering pensions), but towards open data more broadly – consumer outcomes can be improved further. There is now a clear global trend toward open
consumers. data and data portability that will enable wider integration across nonfinancial industries, including sectors such as healthcare, retail, and
government — as well as broadening the range of third parties that will compete or intermediate financial relationships. In banking, this trend
has manifested in the explosion of so-called embedded finance, in which nonfinancial firms increasingly offer financial products directly to their
customers within their own apps and services via open APIs and partnerships.
Many consumers are already accustomed to payments services being embedded in non-financial services products – e.g., automatically paying
for rides directly in the Uber app – but the use cases for embedded banking, lending, insurance, and investing products are rapidly expanding.
Embedded banking and lending products allow non-FIs to offer financing options directly to customers, or bank accounts and payroll advances
to freelancers and hourly workers, and much more. For ecommerce merchants, embedding point-of-sale (POS) financing at checkout can
significantly improve conversion rates and average order values. Taken together, open finance – that level of connection across verticals and
provider types – brings hitherto unheard-of potential to reduce friction through automation to combine real-time insight across multiple sectors
and guide customers to contextualized, personalized results drip-fed through the day-to-day interactions.

4
 Key Technology Trends in Open Banking

Unbundling of the value chain drives ‘platformification’ Legacy modernization to support open banking volumes
This unbundling of the banking value chain will only gather pace amid open A few months into the launch of open banking in the UK, a study on the performance of
banking. As vertically integrated business models collapse, incumbents must
the open banking APIs revealed that several banks were failing to deliver adequate service
decide which parts they seek to own, and how; which parts they’ll look to
collaborate and supplement capabilities on; and where they’ll accept the old quality levels to consumers for the basic APIs required by the Competition and Markets
business and its economic model has broken and move into new areas. One clear Authority (CMA). This included availability and latency broken down into DNS, handshake,
trend for larger banks is seeking to reconstitute the unbundled model by connection, upload, download, and processing times. The challenges of legacy
becoming a platform itself. Much has been made of Big Tech platforms such as infrastructures were noted in the report. Those that came bottom of the league were
Amazon, Rakuten, Ant Financial, and Tencent seeking to become super apps, among the largest and best-resourced banks in the UK. With APIs to become paid-for
creating ever more services, and merging value chains to become central to their products, performance becomes critical, but with a vast ecosystem of third parties making
customers’ lives. PayPal, Klarna, and Revolut, among others, have declared plans repeated data requests, the risk of system overload becomes very real.
to become a super app, taking the first steps towards building ecosystems that
integrate features such as mobile payments, shopping, investing, savings,
Performance is critical for banks given the heightened cost of downtime (fines,
budgeting, and crypto-capabilities onto a single platform.
reputational damage, etc.). Banks need to validate functionality and performance under
Even Walmart has entered the fold, having hired execs from Goldman Sachs to load, often by reusing functional test cases. In many cases, banks will need to provide
build a super app serving low- to middle-income customers across the US. For multi-sourced aggregation, which implies a series of tests across different APIs, and
incumbent banks, a more sensible near-term aspiration is becoming a platform perhaps even different technologies such as server-side and client-side aggregation, to
around lifestyle propositions linked to core products, such as buying a new home, populate certain data sets at certain times.
with the bank orchestrating not just financial services but also services that help
the customer insure, renovate, and furnish the new home all integrated into the
bank’s platform. DBS, OCBC, and Tinkoff Bank have done much in this space
already. More recently, in a small business context, RBC’s Ownr offers end-to-end
administrative, regulatory, and advisory services to entrepreneurs setting up and
managing a new business in Canada, from registering the business as a sole
proprietorship or an incorporation to building the brand and helping with
business insights.

5
 Key Technology Trends in Open Banking
Cloud migration to enable secure openness
Cloud is the most secure way to fulfill open banking obligations. The ability to provision
low-cost computing power quickly and securely encourages experimentation with a
wider array of partners, particularly less-proven startups, as the costs of failure are
much smaller. Digital teams can set up incubation sandboxes that allow for safe
experimentation, often specifically approved by regulators. Integration layers can
safeguard systems of record, such as transaction or booking systems. The cloud enables
incumbents to ingest greater volumes of customer data, analyze it, and deliver highly
personalized services when and where they are wanted. However, particularly in an
open banking (or open data) environment, customer data is often unstructured and
comes in greater variety, velocity, and volume, so modern technologies – such as
artificial intelligence and machine learning – are required to glean meaning insights
from that data. Tech giants like Amazon, Tencent, and Alibaba have quick and easy
access to these capabilities in a cloud environment, with security standards that are
beyond doubt.
Players use open banking-enabled Know Your Customer
Onboarding is typically the most ‘high-friction’ interaction for most incumbent providers
and where new entrants focus their efforts to demonstrate the vast divide in digital
capabilities. Process automation can streamline the necessary customer due diligence
by using open banking to source and verify customer information. This use case is
particularly compelling for smaller financial institutions with fewer employees to
support compliance operations. Open banking has the potential to simplify this process when ‘Uber becomes the bank for taxi drivers,’ ‘Netflix the bank for film workers,’ ‘Spotify the
by fetching hard-toaccess financial information and reducing friction for end users. New bank for artists,’ and so on. These firms have more data on their customers and continue to
digital banks like Monzo have all put open banking-enabled account opening at the
heart of their digital propositions. This is part of the reason why Monzo has opened
approximately six times as many new accounts in the last 12 months compared to
incumbent banks in the UK.
6
Bank as a service (BaaS)
BaaS democratizes access to financial services provision by making various elements of the
technology and/or regulatory stack – banking license, anti-money laundering (AML), KYC, core
banking, payment infrastructures, etc. – available ‘as a service.’ On the one hand, this is an
exciting new revenue opportunity for incumbents and a way to monetize otherwise fixed
infrastructure costs. New digital banks like Fidor, for example, provide BaaS to telcos such as
Telefonica through O2 Banking in Germany. This helped O2 bypass much of the cost and time
involved in understanding local banking regulations and integrating into local tech ecosystems,
which typically represent 80% of new launch costs, according to our research interviews. This
emancipates staff to focus on early engagement to drive much needed scale. In the US, new
traditional banks such as Cross River, Sutton Bank, Celtic, and Evolve have experienced
remarkable growth by focusing purely on BaaS partnerships.
They have not looked to 'own' the customer relationship in a way that would be an anathema
to big incumbents spending billions on technology (or even mid-size regional banks merging to
combine tech strength, as SunTrust and BB&T did). However, for larger banks, BaaS represents
a significant reduction in barriers to entry. New entrants can offer over-the-top digital services
that are ever more segmented, such as a startup focused on the banking needs of mixed-race
women aged 30 who work in banking, for example. It will become progressively more difficult
for large universal banks to outperform on some dimensions of customer experience,
particularly things like ‘emotional connection with provider.’ This especially applies as and
add other adjacent financial services, the value of which lies not so much in the intrinsic value
of the banking product or service – i.e., banking – but the context (i.e., data and brand). So-
called ‘embedded finance.’
 Key Technology Trends in Open Banking
AI-driven analytics
Open banking offers clear opportunities for enhanced personalization across all
elements of consumer interaction by giving algorithms more data to limit bias and
enhance predictive power. Algorithms underpin all aspects of digital products and
services, such as market algorithms in robo platforms that help novice investors
navigate stock market gyrations; non-market algorithms that identify upcoming
cashflow shortfalls; user experience algorithms that reconfigure digital interfaces; or
behavioral profiles that help flag potential fraud based on digital use. The biggest single
category of open-banking solutions in the UK comprises those that use access to
banking data to improve an existing product or service, primarily data insight. Over time,
open banking-driven algorithms can become key enablers of autonomous finance,
effectively automating account management activities to make it easier for customers
to stay on top of their finances.
Payment initiation service providers (PISPs)
Best-in-class online retailers use payment initiation service provisions of open banking
to increase security and convenience when shopping online. Canadian ecommerce
company Shopify and Klarna, the Swedish online payments company, let shoppers buy
items online by paying directly from their bank account. Both companies process
millions of purchases a day, with Klarna offering various Buy Now, Pay Later (BNPL)
options. Last year, monthly active users of Klarna’s app increased 1.6 times, and the
volume of consumer loans grew by over 40%. In 2020, Shopify grew its gross
merchandise volume by 96% and doubled its valuation. Amazon offers similar financing
options to EU shoppers through partnerships with banks such as Barclays. UK startup
Caura applies the embedded payment model to automobiles, enabling customers to pay
parking tolls, congestion charges, and vehicle taxes directly from its app.
7
Heightened focus on API security
Due to COVID-19, the volume of fraudulent activity has significantly increased. Many analysts
have termed it a “golden age” of cyberattacks. To help protect data, a growing number of
companies store their data on cloud platforms and implement machine learning to take a
more proactive approach to threat detection and identify a wider variety of attack vectors
across their network and platform. Private APIs made public risk-exposing exploitable design
patterns, as they typically pass lower security thresholds. There are two critical aspects to
safeguarding an API: one, preventing the keys that unlock access to API data from being
stolen; and two, verifying the authenticity of the code that is trying to access the API from
the application. This enables banks to monitor who can access an API, what they can do with
it, and how they can do it. More tactical concerns focus on routing, throttling, and load
balancing, which can have cyber considerations. Denials of service (where a server is flooded
with empty requests to cripple its capability to conduct normal operations) can be directed at
APIs as easily as they can be directed to websites. Providers such as Apigee and MuleSoft
(owned by Salesforce) offer API management systems that can adhere to enterprise security
frameworks, as required by big incumbent banks.
Data democratization to diffuse data and insights internally
More and more banks realize the need for a collaborative approach towards data and its
availability to all users across the organization. Distributing information across teams and
business units empowers individuals at all levels to use data for better decision-making and
bring different perspectives to the data. For example, Royal Bank of Scotland moved to data
democratization to sort its digital marketing initiatives. Rather than data existing in silos, it
provided non-marketers with access to unified data, empowering them to provide new
insights into the marketing process (beyond just marketers).
 Key Banking Macroeconomic Trends

Adapting to long-term ultra-low interest rates with subscription pricing

Big incumbent banks typically generate around 80% of their revenue from net interest
margins. Long-term macroeconomic policy likely leaves a massive hole in the balance
sheet here, which many incumbents are already seeking to diversify away from. Short-
term, open banking represents all costs, in terms of setting up improved data
capabilities, dealing with API calls, research and marketing into building and
understanding what a business-to-business (B2B) data business might look like, etc.
But long-term, the promise is better products from data enhancement and
personalization, which may drive more product sales. New types of products, such as
APIs, to new types of customers and new ways of getting charged. One clear trend is
toward subscription pricing. Data from Open Banking Org in the UK suggests the most
prevalent charging model for API-enabled products, whether infrastructure services,
product APIs, or customer experience APIs, is a recurring monthly charge and/or pay per
call.
Responding to threats from new entrants
Open banking initiatives the world over lower barriers to entry, around access to bank
data and in allowing niche players to partner to ‘re-bundle’ banking and represent a
more viable alternative to incumbent full-service providers. Estimates differ on the
potential loss of income from this. Citi predicts a loss in business volumes of up to 50%
in payments and investments and up to 35% in consumer and business lending and
mortgages to new entrants by 2025, according to itsreport, Citi Research Global Digital
Strategy “Bang and Fuse” Model. Accenture estimates that as much as $416bn of banks’
total revenue will be at stake as the open data economy materializes over the next three
years.
The global pandemic
Due to COVID-19, the volume of fraudulent activity has significantly increased. Many
analysts have termed it a “golden age” of cyberattacks. To help protect data, a growing
number of companies store their data on cloud platforms and implement machine
learning to take a more proactive approach to threat detection and identify a wider
variety of attack vectors across their network and platform. Private APIs made public
risk-exposing exploitable design patterns, as they typically pass lower security
thresholds. There are two critical aspects to safeguarding an API: one, preventing the
keys that unlock access to API data from being stolen; and two, verifying the
authenticity of the code that is trying to access the API from the application. This
enables banks to monitor who can access an API, what they can do with it, and how
they can do it. More tactical concerns focus on routing, throttling, and load balancing,
which can have cyber considerations. Denials of service (where a server is flooded
with empty requests to cripple its capability to conduct normal operations) can be
directed at APIs as easily as they can be directed to websites. Providers such as Apigee
and MuleSoft (owned by Salesforce) offer API management systems that can adhere
to enterprise security frameworks, as required by big incumbent banks.

8
 Regulation in Banking
Data governance
Further increases in data require further work on structures and processes to manage,
control, and disseminate data. Data catalogs that enable people across internal silos to
discover and use data and the insights it enables become more important. A transition
to an open data economy will also require that banks invest in advanced analytics tools
that enable them to aggregate external datasets and customer-mapped data. Perhaps
even more importantly, banks will need to drive a culture of data-sharing and data-
driven decision-making across the business, making use of machine learning and
artificial intelligence to enrich insights.
Fair treatment
Regulators worldwide are fixated on various dimensions of fair treatment in the
aftermath of the pandemic, but particularly issues of affordability and informed
decision-making for consumers. Open banking-enabled data makes product comparison
easier and can help give customers more transparency around their options and the
risks they face. Open banking data can also help expand access to financial services. For
example, lending to SMEs is always the first to fall off during times of crisis, as their
limited credit histories make them hard to assess. Expanding access to these firms can
contribute as much as 33% of gross national product in developing economies, yet
effective lending to this segment is disproportionately dependent on alternative data
sources. The same arguments apply in advanced economies, with SMEs as the lifeblood
of economic recovery, both in terms of political rhetoric and economic policy. Insofar as
open banking provides the data to enable the lending, it removes the need for more
blunt government policy to protect SMEs.
9
How to handle consent and permissions
Due to COVID-19, the volume of fraudulent activity has significantly increased. Many
analysts have termed it a “golden age” of cyberattacks. To help protect data, a growing
number of companies store their data on cloud platforms and implement machine
learning to take a more proactive approach to threat detection and identify a wider
variety of attack vectors across their network and platform. Private APIs made public
risk-exposing exploitable design patterns, as they typically pass lower security
thresholds. There are two critical aspects to safeguarding an API: one, preventing the
keys that unlock access to API data from being stolen; and two, verifying the
authenticity of the code that is trying to access the API from the application. This
enables banks to monitor who can access an API, what they can do with it, and how
they can do it. More tactical concerns focus on routing, throttling, and load balancing,
which can have cyber considerations. Denials of service (where a server is flooded
with empty requests to cripple its capability to conduct normal operations) can be
directed at APIs as easily as they can be directed to websites. Providers such as Apigee
and MuleSoft (owned by Salesforce) offer API management systems that can adhere
to enterprise security frameworks, as required by big incumbent banks.
 Regulation in Banking
Partnership terms
Banks may need to manage hundreds of partners in the open data economy. Doing this
effectively will require metrics to distinguish between tactical and strategic partners.
Servicelevel agreements are particularly important with smaller fintech partners, given
that the incumbent bank partner will be bearing the greater reputational risk in the
event of a service outage. Understanding how likely such an outage is and who is liable
when it does occur – as well as establishing an agreed process for recovering
performance – is critical. Amazon guarantees so-called “four nines” (99.99%) availability,
meaning only 52 minutes and 36 seconds of downtime across the entire year. Few
smaller players can replicate those terms (at least as reliably), forcing banks to negotiate
on a case-by-case basis.
Amid data-sharing, additional clarity around the liability model is required, as it may
involve three or four different actors in a chain, including a bank, a payment provider,
and a new bank. Determining who should be responsible as well as how, where, and
when is not straightforward, particularly as fintechs lobby for risk-based regulation and
open-banking initiatives legitimize an ever-wider variety of new, unproven startups. Any
material breach of data security here could present the next PPI-scale payout and
scandal for banks. Meanwhile, fintechs want to avoid granting too many rights (such as
right of first refusal on the sale of the company), as this could harm future fundraising.
New initiatives like the Fintech Pledge attempt to provide some standardization around
onboarding processes and compliance due diligence.
10
Regulatory limits to ‘platformification’
Due to COVID-19, the volume of fraudulent activity has significantly increased. Many
analysts have termed it a “golden age” of cyberattacks. To help protect data, a growing
number of companies store their data on cloud platforms and implement machine
learning to take a more proactive approach to threat detection and identify a wider
variety of attack vectors across their network and platform. Private APIs made public
risk-exposing exploitable design patterns, as they typically pass lower security
thresholds.
There are two critical aspects to safeguarding an API: one, preventing the keys that
unlock access to API data from being stolen; and two, verifying the authenticity of the
code that is trying to access the API from the application. This enables banks to
monitor who can access an API, what they can do with it, and how they can do it.
More tactical concerns focus on routing, throttling, and load balancing, which can
have cyber considerations. Denials of service (where a server is flooded with empty
requests to cripple its capability to conduct normal operations) can be directed at APIs
as easily as they can be directed to websites. Providers such as Apigee and MuleSoft
(owned by Salesforce) offer API management systems that can adhere to enterprise
security frameworks, as required by big incumbent banks.
 Industry Analysis

Open banking is clearly a global trend, but paths and progress vary. It is not just the style of intervention that differs, but also the scope, with substantial variations across:
which entities and products they apply to – just banks, or other financial entities, such as insurers and wealth managers; what information should be accessible by third
parties, with the customer’s consent – such as transactional information, product data, or aggregated statistics; and whether operations, like account-to-account payments or
contracting new products, are included.

11
 Open Banking Global Attitudes
India developed an open real time transfer platform
To ensure interoperability across this new ecosystem, the National Payments
Corporation of India (NPCI) developed an open, real-time inter-transfer payment
platform in 2016 called Unified Payments Interface (UPI). This was an early forerunner
of open banking.
Unlike with PSD2, the NPCI provided a set of predefined APIs along with detailed
security standards to ensure quick and consistent implementation. The state
implemented a standard set of APIs called IndiaStack (government-driven, not
mandated) to expedite India’s move toward a “presence-less, paperless, and cashless
service delivery,” including: Aadhaar – the largest central database of biometrics-based
identity information in the world, issuing all nationals with a unique 12-digit identifier;
eKYC, which enables paperless and rapid verification of addresses and identities; eSign,
whereby users can attach a legally valid electronic signature to a document; DigiLocker,
a cloud-based document-repository system that enables the sharing of digitized identity
documents and certificates.; regulatory clarity on aggregation.
Authorities built consumer confidence in aggregation, the lifeblood of fintech
innovation, by enabling it on the most secure technological foundations and seeming to
do away with screen-scraping early on. That meant incumbents could not shut down a
whole layer of fintech innovation by making credential share a violation of online
banking terms and conditions. Instead, the likes of Bank Bazaar, staffed by US fintech’s
best and brightest, recreated their services in India emboldened by secure, consensual,
standards-based data-sharing.
12
The US is a receptive market to open banking development
The US as yet has no regulatory mandate but does have a population receptive to the
capabilities promised by open finance. But there is a long history of big banks blocking
aggregation. Cynically, as US banks realized aggregation was more likely to happen,
they moved to enable it on the most favorable terms. It started with agreements
between larger aggregators such as Intuit regarding when they are allowed to access
bank systems. Now they are moving to one-off direct access deals with third parties.
Direct deals give banks more control and are more secure.
Users do not have to provide credentials through third-party apps. This is replaced
with direct authorization through the bank and subsequent authentication through
tokenized access. This provides for a better user experience as direct feeds are
accurate and realtime, unlike client-side aggregation, which only updates post-login,
and screen-scraping, which ‘breaks’ if underlying passwords change or webpage
layouts evolve. Direct deals can also benefit the broader financial application
developer community by providing access to permitted data for API-dependent apps
and services once the proper authorizations are obtained, delivering all the benefits of
these apps to banks’ customers.
However, an end state of innumerable oneoff deals between banks and third parties
disadvantages smaller fintech providers and limits overall interoperability in the
system. In particular, the resource commitments inherent in negotiating a series of
bilateral terms with large incumbent banks, and the technical and legal costs involved
in building and maintaining APIs, can effectively exclude these smaller players from
mainstream retail banking.
 Open Banking Global Attitudes

Australia
Australia has started from an open data concept with the Consumer Data Right (CDR),
which launched open finance first before focusing on utility and telcos. Some are opting
for a more regulatory-driven approach modeled on Europe and the UK, such as
Australia, Canada, Hong Kong, and more recently Brazil and Mexico in Latin America and
Bahrain and Saudi Arabia in the Middle East, with mandated API standards and data
access. Others are following a more market-driven approach such as the US, driven by
the rise of nimble fintech challengers and those in Asia like China and India, in turn
driven by payment disruptors and ecommerce giants.
China
China has had a level of openness that the rest of the world is trying to create top-
down from a policy of ‘benign neglect.’ A deliberately ‘lite’ regulatory regime around
data privacy made it easier to generate vast amounts of data and analyze that data
freely. Consumers are happy to share data (unlike in Europe post-PSD2) in order to
facilitate credit assessments to access financial services. Incumbent banks accustomed
to state-directed lending were not equipped to assess the creditworthiness of SMEs in
a more market-driven economy, and waiting to reform those institutions would create
a drag on economic growth.

Singapore
In the Asia Pacific region, the Monetary Authority of Singapore’s (MAS) published
taxonomy of bank API functionalities focuses on granular APIs that expose specific
capabilities. Asia Pacific banks, as a result, lead the world’s open banking movement by
that measure, with Singapore as a country averaging several orders of magnitude more
API products than EU banks.
European Union
Instead, authorities wagered that fintechs would be smaller enough to generate useful
innovations but not so large as to create material shocks. This wager massively paid
off. But the resulting fintech model is rooted in the dominance of those big four tech
companies – Tencent, Alibaba, Baidu, and Xiaomi – each of which has created its own
ecosystem of services rather than niche players (as is more common in Europe and the
US). Regulatory focus now is on ‘closing’ slightly to restore investor confidence
following peer-to-peer (P2P) lending scandals. For example, authorities have
introduced over 100 new rules to combat fraudulent business practices.

Just because openness has been top-down in Europe does not mean it will be any
quicker or faster necessarily. While PSD2 mandated banks must make data available to
third parties, the legislation left it up to individual countries to agree on how they went
about sharing the data, which created a fragmentation in the standards. UK and
Germany always had the strongest standards, and this has translated into a key clear
advantage in driving culture change and acceptance, as evidenced by the number of
APIs in UK and Germany versus the rest of Europe.

13
Open Banking Global Attitudes

The UK has significant numbers of open banking licences

The UK has the highest number of open banking licenses issued to PISPs, which
enable users to withdraw money directly from their accounts, and account
information service providers (AISPs), which let users see all their payment
account information from different bank accounts in one place (i.e.,
aggregation). It also has a total of 173 operational account-servicing payment
service providers (ASPSPs) – financial institutions that utilize both PISPs and
AISPs to offer payment accounts with online access – compared to just 36 for
Germany, the runner-up in the ASPSP category. The number of licensed open
banking APIs in the UK (166) is second only to Norway (194). Meanwhile, data
released by the OBIE in the UK suggests a broad cross-section of consumer-
facing use cases are evident across 2018–20, but payment services lead in the
UK. While regional market differences will have a big impact on the type of
services launched first through open banking, as will the manner in which open
banking is delivered, our survey data suggests that payments will be the
primary focus in most geographies, at least initially. As the chart below
indicates, 70% of 75+ customers do not want third-party access to accounts
regardless of what the service benefit may be (insight, credit), with that
number falling to 20% plus of the younger customers. And where customers do
want open banking, it’s for heightened security, primarily through more secure
payments (i.e., safer online purchases).

14
 Mergers and Acquisitions in Open Banking
Open banking requires a mix of technology capabilities, around data-sharing, analytics,
algorithms to generate insight, and secure API management. There has been a lot of deal
activity across the last five years globally as banks jockey for position. Generally, we’re
seeing four broad categories of acquirer:
Open banking infrastructure/platform providers
Global players have to deal with different API standards and specifications in given
markets and regions, which drives acquisitions. Notable examples include Tink acquiring
FinTecSystems, Eurobits, OpenWrks, and Instantor, and Plaid acquiring Quovo. Likewise,
Yodlee, with a longstanding aggregation business in the US, acquired emerging financial
aggregator FinBit.io, which already powers over 60 B2B fintech companies, with a view to
developing its business in India and Asia. Latin America, ripe for fintech innovation,
includes a cluster of providers, such as Belvo, Fintoc, and Prometeo, likely to be
acquisition targets going forward. To become the Plaid of LatAm, these startups will need
to onboard a large number of banks and fintech clients in order to achieve economies of
scale; establish a large geographic footprint across the region, as many of their clients
will be operating across borders; be competitive on price (per API call and subscription-
based); and innovate quickly to help bring new use cases to market.
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Credit bureaus and comparison sites
With a global shift towards the use of open banking data, many credit bureaus already
collaborate with open-banking companies in order to incorporate other types of financial data to
get a more holistic credit score rating for customers. Open banking also reduces administrative
costs for credit bureaus and prevents fraud. Comparison sites have acquired money management
firms to combine a proven business model around price comparison with deep financial insight
that could make those comparisons even better; for example, Money Supermarket acquired
OnTrees back in 2015. Credit bureaus have partnered with or acquired price comparison sites to
offer more insight on product pre-approvals, as part of a move to more ‘always-on’ high-touch
interaction models that are better suited to digital engagement models.
Payment providers/ Card schemes
Payment modernization is happening all over the world, driven in no small part by open banking.
Card schemes have traditionally provided the rails for payments, through credit or debit, but
open banking rails are very different, with players such as Plaid, TrueLayer, Finicity, and Tink
offering digital alternatives and seamless bank-to-bank transfers. Payment companies may
choose to acquire open-banking companies in order to broaden their open-banking reach and
diversify their revenues beyond credit card payments. Visa’s potential acquisition of Plaid was
blocked by the regulator, with the payment service provider now moving forward with Tink.
Mastercard has made a series of strategic acquisitions in this area.
Consumer lending
Consumer lending is becoming increasingly digital. Open banking allows companies to build a
process that increases conversion and approval rates for creditworthy customers. Acquisitions
here typically center on data specialists that can use transaction data to better evaluate an SME’s
eligibility and affordability against the appetite of lenders in its marketplace and that are
accessible by banks, lenders, lessors, and brokers. Much of this merger and acquisition (M&A)
activity has been from non-traditional lenders, but incumbent banks will increasingly move from
partnership to acquisitions in this area.
Leading Companies and Infrastructure

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 API Platforms provide the infrastructure

To deliver open banking in different markets, incumbent banks need platform providers that enable the connections between banks and third parties and can deliver the necessary data
and payment aggregation. Providers of these services typically offer a mix of things, such as helping banks build APIs to comply with local open-banking standards; value-added services,
such as various types of data enrichment and account verification; and a series of tools for developers that would use the bank’s platform. Below, we list leading firms and their
competitive positions.

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 BaaS represents big market opportunities

BaaS, the inverse of embedded finance and a term used to designate

non-financial service companies offering their customers financial
services, typically from regulated, incumbent financial institutions, is
an enormous market opportunity for new entrants and incumbents.
Open banking provides both the technology rails and culture change to
make this business model possible. We outline leading players within
this sub-category and their competitive positions within the open
banking theme overall.

BaaS…is an
“ enormous market
opportunity for
new entrants and
incumbents

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 Data and Platforms will allow new propositions

The multi-dimensional logic of open banking means incumbents no longer

generate revenue solely from traditional D2C propositions. Now, they can
disaggregate types of data – transaction, location, etc. – sell in aggregated form to
retailers, and/or make it available to developers who can develop and refine their
own products, either paying to access the data or developing an application that
will be available on the bank’s platform. We outline the leading players in this
sub-category of open banking and their competitive positions within the theme.

“
incumbents no longer
generate revenue
solely from traditional
D2C propositions.

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 Payments are now more frictionless

Payments are being revolutionized not just by open banking, where banks and
new entrants are becoming PISPs, but by new formats and methods such as QR
codes, P2P payments, and crypto to reduce friction and improve the customer
experience. New firms such as Adyen are complementing existing technology
firms such as Stripe and PayPal in this space. Below, we outline the key players in
this sub-category of open banking and their competitive positions within the
theme.

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 Credit decision/lending is accelerated

Credit-related decisioning is a core open-banking use case with enormous

commercial potential to profitably serve sub-prime or otherwise difficult-to-
access customers and/or limit non-performing loan ratios under the extraordinary
market conditions generated by the pandemic. Open banking promises not only
to improve the quality of decisions but the speed, offering important CX gains in
an ever more crowded marketplace. Here, we outline some of the key players in
this sub-category of open banking and their competitive positions within the
theme.

“
Open banking
promises not only to
improve the quality of
decisions but the
speed

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Glossary

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Appendix

Further Reading
• Global investment banking and brokerage (2021) MarketLine Industry Profile
• Global Insurance (2021) MarketLine Industry Profile
• Global IT Services (2021) MarketLine Industry Profile
• Global Cryptocurrency (2021) MarketLine Industry Profile
• Payments & Transactions: Companies investing in key themes will dominate the payments industry (2021)
MarketLine Case Study

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Appendix

Ask the analyst

We hope that the data and analysis in this theme report will help you make informed and imaginative business
decisions. If you have any questions or further requirements, MarketLine's research team may be able to help you.
The MarketLine Research team can be contacted at ReachUs@MarketLine.com.

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