How Will Open Finance Transform Digital Banking? 5 Insights for Banks and Fintech in 2023


As we move into 2023 during a volatile economic time, is important to look at ways that give consumers opportunities to optimize their finance. Open finance has much to offer to both consumers and their service providers. With data sharing dwelling at the core of open finance, data is considered the most sacred component to revolutionize user experience and proliferate digital banking preferences. 

With customer-facing data, digital banking can reimagine its adaptability to the most sophisticated open banking ecosystem while innovating at scale and providing a personalized customer experience. As a result, banking today means more than payments and transactions. To remain competitive, traditional and digital banking must evolve and embrace new tools and technologies that bring out-of-the-box experiences for them. 

As more and more financial services favor data-powered product innovation, open finance unleashes enormous possibilities for the future. Below is a list of insights for those enthusiasts who want to shape user experience and evolve quickly. But before we move ahead, just take a quick look at the most-talked financial term: open finance. 

What is Open Finance?

Mckinsey defines open finance as a “collaborative model built on top of an API-led interface to enable two or more third-party service providers to access banking data and offer enhanced capabilities to the marketplace.” 

PSD2 regulated API-based interface gives customers greater control over their data to be used by third-party financial service providers like fintech, including traditional banks, to derive value-added services around financial products. 

According to Jack Wilson, Policy and Regulatory Head at TrueLayer: "Open Finance empowers customers. Customers reuse and share their financial data with third-party providers to innovate better products.  

There are potential benefits that open banking could provide:

1. Enhanced customer experience
2. New and improved revenue streams 
3. Sustainability for underperforming business models 

With that said, let’s know what’s trending on the open banking side. 

BaaS for Everyone 

Banking-as-a-Service (Baas) is no longer just for small banks with 10 billion in assets. Gartner predicted that 30% of banks with greater than 1 billion in assets will launch banking as a service into their service model by the end of 2024.  It means banks are looking at BaaS as a new revenue model for their existing services. 

As per Finastra BaaS outlook, big players beyond banking from manufacturing to healthcare will leverage BaaS to derive new value propositions with financial services. 


  • The report also suggests that BaaS will grow to a massive $7 trillion value by 2030. As the portfolio extends beyond banking infrastructure, retailers and e-commerce companies are interested in implementing BaaS into the customer experience.
  • Finastra further reported that 85% of senior executives have already leveraged BaaS or will do in the next year. 

For large banks, the deal works if they can fetch a high volume of payments through collaboration with retailers or merchants. 

Embedded Fintech on The Rise 

Consumers are looking for technologies and products that cater to their needs at the right time and place. They are reluctant to spend time after highly regulated products; instead, they want seamless and timely value-added services through applications embedded into their familiar products. 

Credit unions and other banks are highly likely to embrace embedded fintech. To offer a more streamlined experience, embedded finance combines more services into one place, such as insurance, tax, accounting, subscription management, and bill negotiation, rather than just payments and lending. 

With omnichannel experience across mobile apps, websites, and business processes, consumers want the embedded fintech to be safe and secure. In addition to value-added services, consumers want data security added to their fintech app, ensuring high-level identity theft and data breach protection.

Sell More with Buy Now Pay Later 

It is not that just consumers want to get hold of their data to keep pace with financial wellness. Mid-size financial service providers help merchants with credit reporting. This gives them the ability to offer specialized services and cut down on the risk of overburdening customers with overpayment. While open finance helps financial services build more secure products to prevent financial trouble, it aims at empowering merchants to sell more through BNPL credit support via third-party services. For example, Klarna and Afterpay provide credit lines for merchants in the U.S. Shopify Capital is one example that helps merchants financially. 

Consolidated Anti-Fraud Protection 

When it comes to privacy protection and fraud prevention, consumers seem a little reluctant to share sensitive data. Statista reported that 43% of financial app users are uncomfortable sharing their financial data related to investments or account balances

As open banking provides access to financial data across third-party service providers, fintech, and other institutions, there must be strict regulatory guidelines. Unfortunately, unlike in the U.K. and Europe, the U.S. still needs to have robust regulatory or compliance laws for KYC/AML processes for open banking. However, following the FTC and Coinbase regulatory compliance issues, regulatory procedures will be strict in 2023.

As per a leading fintech leader, Plaid, consumers want strict laws around open banking. This will probably bring fintech players, banks, and regulators together to figure out one consolidated regulatory framework to provide consumers with anti-fraud protection. In addition to consolidating fraud risk management, new innovations will minimize the complexity of fraud risk management. Solutions that are built on hyper ledger decentralized technologies are more capable of eliminating different data points and combining advanced features into one consolidated tool to offer more secure and safer KYC/AML compliance processes. 

Improve Customer Interaction with Conversational Chatbots 

Gartner predicts that customer-led automation will increase the focus on self-service. It means customers want a more independent approach to handling their queries and finding resolutions. Self-service automation bots will help users escalate as high as a billion service tickets by 2030. Chatbots are equipped with FAQ-based resources to handle a broader range of use cases as they unleash natural language understanding to perform repetitive tasks 

To accelerate their digital transformation efforts, it is essential that fintech or traditional banks also leverage chatbot technology and stay ahead of the competition. 

We cannot dismiss that open finance opens up enormous opportunities for digital banks and fintech to extend their current portfolios and help nurture multiple ways to grow.  At the same time, one must pay attention to the escalating threat around the open finance ecosystem. As data is easily accessible through API-led third-party interfaces, fintech, banks, and enthusiasts outside the non-banking domain must ensure a safe and secure environment for consumer protection. 

We at Instnt are committed to providing continuous anti-fraud protection throughout the customer lifecycle by leveraging decentralized KYC/AML technologies and biometric analytics. We also take utmost care of our customers and clients by enabling them to shift fraud-loss liability off their balance sheet with $100MM in annual aggregate fraud loss insurance.

To learn more about how we can help you embrace open finance while protecting customer privacy and preventing financial fraud, connect with us today



Forbes - 5 Predictions For Banking And Fintech In 2023

Forbes - Embedded Finance Will End Traditional Banking? Actually... Yes!

Mckinsey - Data sharing and open banking


About the Author

Instnt's fraud loss indemnification technology provides coverage of up to $100M for fraud losses stemming from synthetic, third-party, and first-party fraud. With Instnt's comprehensive fraud loss protection, businesses can confidently extend their services to a wider customer base, enabling them to embrace more opportunities and enhance revenue streams while maintaining a secure, fraud-free environment.