Further, CMA9s plan to offer a breadth of new financial services, from three open finance products and services today to five over the next two years. In comparison, incumbent banks currently offer just a single open finance product or service and stated no plans to increase that total.
Eighty-one percent of CMA9 leaders (compared with just 22% of neo banks) think open finance will improve their organization’s reputation in the market. This suggests that any action they are taking with open finance may be for the wrong reasons—and, as a result, fail to achieve the maximum potential business impact.
At the same time, we see CMA9 banks beginning to move from a compliance-only mindset to gaining an understanding of the additional (and perhaps unexpected) use cases applicable to open finance, such as enabling customers to support environmental, social and governance (ESG) issues and reduce their carbon footprint—a business priority for 60% of CMA9s. But they need to work out how to harness open finance to fulfill these ambitions, for instance, by partnering with other providers of “white-label” products.
Reluctance among incumbents
By comparison, 60% of incumbent banks view open finance as not at all important to their future success, and 57% believe it has been over-hyped and is unlikely to disrupt the industry; as a result, internal resistance to change is far greater than that faced by CMA9 institutions.
Incumbent banks also admit to having a limited understanding of the benefits of open finance, with only 23% believing they fully understand the benefits. This, in part, could be because they were not required to comply with open banking regulation in 2018 as CMA9s were.
Yet the benefits of open finance align firmly with incumbents’ stated business priorities: helping to accelerate their digital transformation (47%), reducing their operating costs (50%) and fundamentally supporting their business model. This gap in understanding suggests an urgent need to educate and accelerate internally.
Many incumbents are stuck in the risk/reward conundrum that hamstrings further advances into open finance. Business change can be expensive and risky, and their ecosystem isn't as mature as it needs to be—legacy systems, business models and capabilities need overhauling to accommodate such major changes. This, coupled with uncertainty as to whether customers will want to sign up for the new services, leads some within the organization to take a view of, “If it isn’t broken, why fix it?”
Faced with these challenges and concerns, many incumbents seem unwilling to engage any further in open finance, preferring instead to wait to see how the rest of the industry manages the execution and rollout of their open finance strategy before they, too, start to invest.
But this mindset of “too much risk with little reward” guarantees they will fall behind. Incumbents will always have a place in the market, but if they don’t act quickly, they risk becoming relegated to the status of a mere supplier of financial products, offering limited additional value or engagement in a customer’s life.