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Customers are adopting open finance faster than social media or digital banking—so why are some institutions reluctant to embrace it? A new study reveals the state of play across the industry.

Open finance is fast gaining ground in the UK. In just three years, the number of people using it has increased fivefold. Today, seven million people use open finance services for everything from making payments to switching accounts.

But despite the rapid uptake, not all institutions are keen to get on board. A  survey from Cognizant shows a clear competitive gap emerging, which could spell problems for institutions that lag behind on open finance adoption.

Neo-banks are starting to pull ahead

Called The Open Finance Paradox, the research study of over 200 decision-makers spans five industry players: neo-banks, incumbents, the CMA9, challenger banks and building societies.

It shows neo-banks fully embracing open finance, with 92% saying it’s important to their future success, and 90% saying they plan to use it to reframe and expand their business.

That might be a wake-up call for traditional players, many of whom aren’t (yet) as keen to get on board. Nearly four-fifths (57%) of incumbents say they think open finance is overhyped, and 67% don’t believe customers want it. Scepticism runs even deeper among building societies, where two-thirds say they have no plans to offer open finance services at all.

And while the CMA9 already offer open finance services and plan to offer more, the report hints at slightly misplaced priorities. The main reason they cite for investing in open finance is to improve their reputation, suggesting that real customer needs aren’t currently top of mind.

Cultural inertia may leave laggards playing catch-up

What’s behind the reluctance to embrace new, API-driven services? As might be expected, data security worries are an issue for some incumbents, as well as for challenger banks, who are keen to move ahead but nervous of opening up customer data to third parties.

Elsewhere, the barriers are more mindset or culture-related. Building societies don’t see open finance as being relevant to their business—which may be true today, but it’s a risky way to think about the future. Many incumbents don’t believe customers want open finance—again quite a risky assumption to make, given the speed of uptake of the past three years.

Among the CMA9, there’s a sense that open finance is more about ticking compliance boxes than re-imagining customer services. These institutions may be appointing heads of open finance and making bullish noises, but the new appointees are finding it tough to convince the C-Suite that open finance is truly worth innovating around. A more compelling business case may need to be made.

The shift to open finance is gathering pace

But what comes across most strongly in the study is a sense of gathering pace. When COVID-19 prevented people visiting physical branches, it massively accelerated the shift to digital services—not just for banking, but in many areas of our lives. Now, open finance looks set to further transform the way people access, use and think about financial services.

The institutions that see open finance as an opportunity to innovate in response to changing customer needs and expectations are likely to gain market share. Those that see it as irrelevant, or a fad, risk losing business to the innovators. How to stop that happening will depend on the individual institution, but a glance through this report could be a good start.

Download the full report here

Cognizant UK & Ireland
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