How Open Banking can fuel the rise of fintechs and neobanks

- January 6, 2021 4 MIN READ
Two areas that could soon dominate the Australian finance space are the increased success of the fintech industry and the movement toward the adoption of open banking.

Interestingly, an ecosystem built on the security needs of banks for sharing consumer data will see fintechs become more intrinsically linked to the innovation opportunities open banking allows for. 

The progression of the Australian finance sector in recent times has been centred on putting power back into consumers hands. The Banking Royal Commission, established in late 2017, highlighted a need for better practices regarding sharing consumer data and putting those customers first under structured guidelines around security and liability over their data. 

Open banking is a rapidly-emerging industry practice describing financial organisations sharing their banking data with accredited third parties to help with broad use cases such as improving lending decisions, tracking spending behaviours and comparing products and services.

This has coincided with the dramatic rise of fintechs – particularly neobanks. The latter are attracting huge amounts of investment and consumer adoption and happen to be particularly strong users of open banking technology. 

Australia is home to some of the world’s most promising neobanks, with Up and 86 400 becoming household names and quickly winning users. As of last year, 10,000 people had accounts with 86 400, and Up had more than 100,000 customers on its books. This year, 86 400 secured $34 million in funding.

Tonia Berglund

Other progressive finance markets have seen similar adoption. According to 2020 research by Finder, 23% of British adults have opened an account with a digital-only bank, equating to 12 million people.

By comparison, only 9% had a digital-only account in 2019, meaning there’s been a 165% year-over-year increase.

The same is generally true of open banking adoption. The UK’s Open Banking Implementation Entity reported that usage of open banking has doubled in the past six months, reaching 2m users.

Furthermore, PwC predicts that by 2022, 71% of UK SMBs and almost two third of adults will have adopted open banking, creating a £7.2 billion revenue opportunity for the ecosystem.


Legislation and the rise of open banking

In November 2017, the Australian Government announced the introduction of the Consumer Data Right (CDR) in Australia.

The CDR set out to give consumers greater access to, and control, over their data, and improve their ability to compare and switch amongst products and services, encouraging greater competition.

All this whilst sharing data through standardised and secure APIs so that consumers can be reassured in the service they are seeking. CDR legislation has evolved over time. It was originally limited to the sharing of data for deposit and transaction accounts, and credit and debit cards – however the sharing of data relating to home loans, personal loans and joint accounts commenced from 1 November this year. 

This has created an even larger open playing field and unlocks the potential for more types of financial service providers to benefit from open banking, and plenty more use cases. 

86 400, for example, has used data aggregation technology to give consumers a full picture of their financial wellbeing during COVID-19 by giving them the ability to see all their accounts in one place, delivering a better view of their financial lives and helping them take control of their money.  

Revolut – perhaps the world’s best known neobank, founded in 2015 with 10M+ global users, attributes open banking as a key part of its customer-first offering.

Open Banking has enabled its customers to view other financial accounts – such as their high street bank account – within Revolut Business through its Linked Accounts feature, saving customers the time and hassle of juggling multiple apps, screens, and login credentials. 

While open banking gives customers a greater understanding of their financial well-being, it also helps financial organisations to make quicker, and more educated, lending decisions based on real-time, rich customer transaction and credit data.

With the responsible lending landscape as it is in Australia, and the government proposing to remove responsible lending obligations (RLOs) to fuel economic growth; the need to use technology and data to help make accurate, insightful decisions has never been higher. 


Banks are a driving force 

While much of the hype and discourse around financial innovation and open banking is centered around startups and financial disrupters, legacy banks have been tapping into aggregated financial data for the past decade. In advanced financial markets like the United States, Envestnet | Yodlee, a global leader in financial data aggregation, a key proponent to open banking, supports 1,400 financial institutions and FinTech companies globally, including 15 of the top 20 U.S. banks.

Banks hold incredible amounts of financial data and by participating in open banking, both they, and the entire ecosystem, can innovate and accelerate at a far greater pace, under a secure data sharing framework, creating a competitive, transparent, and customer-first financial ecosystem. The conversation around open banking shouldn’t be banks versus fintechs, but one of collaboration and mutual benefit. Fintechs often innovate at a faster pace whilst banks oversee the customer ecosystem that can benefit from this innovation. After all, sharing data can dramatically improve the products and services the industry offers, which in turn benefits everyday Australians – which must be the overall aim. 


Exciting times

The growth of open banking and the enablement of financial organisations that can use comprehensive, open data to enable better decision making through the use of their financial products and services, means the future, in terms of accurate and customer-first banking, is looking incredibly exciting. 

As legislation continues to evolve, and organisations continue to implement open banking, the opportunities could truly be endless. 

The growth of neobanks, the rapid evolution of Australia’s financial ecosystem, and a culture that is centered around putting customers at the heart of everything this ecosystem does, is something that open banking has, and will continue to be lead. Open banking could hold a very important key to the future of Australia’s bourgeoning finance industry. 


* Tonia Berglund is Director of Product at Envestnet | Yodlee