Opinion by: Sarah Häger, Regional Manager Scandinavia and DACH, Enable Banking
Throughout 2023, I have observed a growing skepticism about the potential of Open Banking. Some investors believe it reached or passed its peak. Some have lost faith in financial institutions’ ability to develop user-friendly services, and claim their APIs will never be functional but will remain limited to its current applications. I have a different view, let me elaborate.
Analogy with the iPhone
I often compare the adoption of Open Banking to the wide adoption Apple’s iPhone has seen, being a large technology shift that opened the ecosystem for smartphones.
However, if we rewind to the first iPhone in 2007, it had only predetermined apps. Features like videos and flashlights were unavailable. At the time, industry leaders scoffed at the iPhone. That skepticism is similar to the situation of PSD2 APIs today.
According to the Gartner hype cycle, financial APIs are still in an early stage, which means that the technology is not yet widely adopted. This stage is characterized by innovation, but also a high degree of uncertainty.
The Tipping Point
Fast forward to the iPhone 4. Apple had refined the iPhone and very quickly it turned to a hype.
Just like the early iPhone, PSD2 APIs have a way to go. The current Open Banking ecosystem is still young and immature. But looking around, there is no doubt that the ecosystem is maturing.
Open Banking in Europe was kickstarted by the PSD2 regulatory framework, but is continuously pushed by its users, whether consumers or corporate/fintechs. Corporates are increasingly pushing banks for improvements through RfPs with questions around API roadmaps, production status, and PSD2/premium API performance. Even internal product departments are giving feedback to their API product teams to get PSD2 APIs improved and fit for purpose.
The Future of Finance
Looking forward into the future, perhaps 5-6 years from now, what use cases will we see come to life then? Open Banking APIs will undoubtedly become more closely integrated with emerging technologies, and interact with non-financial technologies. This will enable new use cases and provide even greater value to consumers and businesses alike.
- AI-driven financial services
Chat GPT has proved there are several applications to AI that we are only now gaining understanding of. Think of financial APIs that could be used to fuel AI-powered advisory platforms that provide personalized financial advice optimizing spending, saving, and investment strategies based on real-time data and predictive analytics. The level of personalization here could include an individual’s goals, risk tolerance, and market trends, automating wealth management and optimizing investment strategies for each person’s unique needs.
- Cross-industry integrations
Financial APIs could enable the integration of financial services into non-financial platforms, such as social media, healthcare, e-commerce, or even education–creating new revenue streams and enhancing user experiences. For example, by integrating financial APIs into the healthcare industry, patients could easily and securely pay for medical bills or manage health savings accounts. APIs could also enable healthcare providers to streamline their billing processes and better track financial transactions.
- Virtual and augmented reality experiences:
Financial APIs could be utilized to create immersive virtual or augmented reality financial experiences, such as virtual bank branches, where customers can interact with AI-powered financial advisors or explore investment opportunities in an engaging 3D environment.
In conclusion, the ecosystem is still in its early stages, and as exemplified with the iPhone analogy, there is still significant potential for growth and innovation. I look forward to looking back in 5-6 years to see how these use cases have changed the way we do business, and what is possible with the APIs then. I look forward to the opportunity to enable them, and continue to find ways to push the boundaries of what is considered realistic.
