Open finance is transforming the financial services sector, extending data sharing and interoperability to a wider range of products and services. With technology at its center, open finance is creating an inclusive, innovative, customer-centric financial ecosystem, and the payments space is primed to benefit from its growth.
With the rise of instant payments, the demand for modernized architecture, and the pace of innovation, there are significant growth opportunities. In parallel, the payments industry is facing other challenges, where modern payment solutions need to be compliant, resilient, and more secure than ever before, ensuring 24 by 7 flawless operations meet increasing regulatory demands and drive customer satisfaction.
However, more efficient payments lead to reduced costs for participants, making them more affordable. I see three key areas where open finance is helping to drive change and shape the future as we create a more inclusive and collaborative payments industry.
Open finance enables payment modernization through an open architecture
The desire of banks to modernize, while driven by constant regulatory and compliance requirements, is elevating customer expectations and increasing competition. It does, however, involve the complexity of updating legacy systems. These are hurdles that need to be overcome to stay ahead.
Today, legacy systems are holding financial institutions back from keeping pace with the needs of an open finance ecosystem. According to Omdia, more than 64% of corporate banks’ technology budget is spent on maintaining existing legacy technology, and just 36% is allocated to either growing or transforming their technology. This does not have to be the case.
The software market is shifting away from traditional monolithic architectures that take years to implement and months to upgrade, moving to modular, containerized, microservices-based solutions. These solutions can be consumed piecemeal, without a need for a major upgrade. Banking is being decomposed to be reassembled, with financial institutions now able to consume smaller, standalone components that can be easily integrated through APIs.
With modern, cloud-based technology that is secure, banks can also benefit from the flexibility and resilience needed to deploy new services with ease. An added benefit is that these payment systems can scale rapidly, whilst being highly available with the 24x7x365 requirements that are fast becoming the norm.
Open finance supports inclusive innovation to democratize payments
With the pace of innovation, financial institutions need the tools to stay ahead. By collaborating with their technology providers who build for scale, financial institutions can launch new services quickly, respond to changing market demands, and enhance their customer experience.
Many financial services are not accessible to underserved communities or small businesses, which hinders financial inclusion. Open finance reverses this narrative, with open, cost-effective solutions enabling seamless integration and collaboration between technology providers and financial institutions. This helps financial institutions provide customers with state-of-the-art payment services, regardless of size.
Another example of how open finance is democratizing payments is alternate cross-border providers that offer more accessible, transparent, and cost-effective solutions to help individuals and businesses than was traditionally the case. The efficiency of these players eliminates the high cost of traditional intermediaries, making cross-border payments more affordable to everyone. Open finance enables the ability to offer these innovative solutions with integrated regulatory compliance features and robust security measures, such as anti-money laundering capabilities, so that institutions can focus on service delivery and inclusivity.
Open finance embraces resilient and sustainable services
The industry now has an opportunity to lead the transition to a low-carbon economy by delivering open, cloud-based solutions that leverage AI capabilities, machine learning technologies, and data analytics to drive efficiencies while reducing hardware footprint and total cost of ownership.
By moving away from outdated, inefficient, and siloed payments solutions, financial institutions have an opportunity to consolidate systems, and by automating processes through AI, operational complexity can be decreased over time.
With payments needs increasing and as digital services scale, maintaining around-the-clock uptime, managing increased loads, and operational resilience are critical for maintaining financial stability. Robust, open infrastructure is needed to ensure that services always remain operational, contributing to better resiliency and compliance.
Lastly, making informed decisions on how best to serve customers, improve operations, decrease costs, and drive sustainable investments is enabled by open finance. By unlocking data access and insights, decision-making is more accessible.
Finance is Open, and banks, credit unions, and technology providers must continue to use this exciting era of change to work together, innovate, and deliver outcomes that benefit individuals, businesses, and society. From making payments faster to reducing environmental impact, open finance is clearly transforming the industry for the better.