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Revisiting Open Banking. Striking a Balance Between Regulation and Deregulation.

Revisiting Open Banking. Striking a Balance Between Regulation and Deregulation.





The banking and financial industry is in the midst of a transformative, disruptive era, with open banking at the forefront of this evolution. The transmutative force of open banking is reshaping how banking and financial services are delivered.

At the core of this financial technological (FinTech) industrial revolution is a critical decision point: the choice between regulated and deregulated open banking. Whereas Europe, the United Kingdom (UK), Australia, and Canada have adopted diverse regulatory approaches to address the challenges associated with open banking, the United States and Singapore have been exploring a more deregulated approach to open banking by experimenting with regulatory sandboxes and promoting competition.

This blog will explore the key differences between these approaches, assess their impacts on the banking and financial landscape, and how pioneering FinTech Youtap continues to advance and develop its software that supports open banking and embedded finance, making its products and services adaptable and available in the highly competitive marketplace of FinTech.   

What’s the Difference? Unpacking Regulated Open Banking: A Foundation of Stability.

A structured framework of rules and guidelines established by regulatory bodies characterises regulated open banking. These open banking regulatory regimes represent an attempt by regulators to take advantage of the wave of digitalisation and its associated sea of data to encourage more dynamic and efficient banking, ensure the security of financial transactions, protect consumer interests, and maintain the banking and financial industry’s stability.

Critical features of regulated open banking include:

  • Data Security and Privacy Measures:

Strict regulations govern the sharing of financial data, emphasising encryption, secure authentication processes, and comprehensive data protection measures;

  • Consumer Protection:

Regulatory frameworks aim to safeguard consumers by outlining rights and responsibilities, ensuring fair treatment, and providing avenues for dispute resolution;

  • Promotion of Fair Competition:

Regulators actively monitor and enforce rules to prevent anti-competitive practices, fostering an environment where both traditional and new entrants can compete on a level playing field.

Deconstructing Deregulated Open Banking: Unleashing Innovation Through Flexibility.

Deregulated open banking embraces a more flexible, market-driven approach. The emphasis is on reducing regulatory barriers to encourage innovation, stimulate competition, and empower banking and financial institutions to shape their own futures.

Critical features of deregulated open banking include:

  • Reduced Regulatory Constraints:

Deregulated open banking seeks to minimise bureaucratic hurdles, allowing banks, financial institutions, and FinTech innovators greater freedom to experiment with new ideas and business models;

  • Market-Driven Competition:

Instead of strict regulatory oversight, market forces drive competition, encouraging banks, financial institutions, and FinTechs to respond dynamically to consumer demands, fostering an environment where consumer needs dictate innovation;

  • Flexibility in Business Models:

Deregulation enables banks, financial institutions, and third-party providers (TPPs) to explore diverse approaches, fostering a spirit of entrepreneurship and enabling the creation of novel financial products and services.

Comparing the Impacts Between Regulation and Deregulation.

  • Risk Management:

Regulated open banking provides a structured environment that prioritises deliberate risk management and data security. In contrast, while promoting innovation, deregulated open banking must navigate risks without the safety net of stringent regulatory constraints;

  • Innovation and Flexibility:

While promoting stability, regulated open banking may risk stifling innovation because of its rigid structure. Deregulated open banking, however, can foster innovation due to its design. Nonetheless, its deregulation demands careful risk management to maintain stability;

  • Consumer Trust:

With an emphasis on consumer protection, regulated open banking may instill a higher level of trust; however, deregulated open banking relies on transparent practices and robust consumer education initiatives to maintain [their customers] trust.

The choice between regulated and deregulated open banking is not binary; instead, it is a nuanced decision that requires a delicate balance. A hybrid approach that combines regulation’s stability and consumer protections with deregulation’s flexibility and innovation potential may offer the best of both worlds. As the banking and financial industry continues to evolve and innovate, finding this equilibrium will be crucial to ensuring that an open banking ecosystem is competitive, dynamic, stable, and secure, a system that genuinely serves the diverse needs of consumers and industry stakeholders while simultaneously promoting ongoing innovation.

Youtap’s open banking strategy is not only to provide a platform and application programming interface (API) but to focus on delivering a single digital banking platform with multiple applications and APIs that securely deploy to the cloud. Youtaps products and services support all core banking platforms, organised on a Software-as-a-Service (SaaS) basis, making it affordable for smaller banks and financial service providers to adapt and grow with their customer-centric, white-label applications.

Open banking is transforming the banking and financial industrial complex, integral to its existence and survival. As it continues to create more tailored and relevant financial products and services, it is almost immaterial whether open banking is deregulated or regulated. However, it is important that open banking is acknowledged and taken seriously for its disruption, flexibility, and innovation, revolutionising legacy standards to the digitised modernity of the 5th Industrial Age.

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