Global open banking market “to reach US$15bn in 2021”

The global open banking market is expected to grow from US$11.79 billion in 2020 to US$15.13 billion in 2021 at a compound annual growth rate (CAGR) of 28.4%, according to market research and analysis solution ReportLinker.

In its newly released “Open Banking Global Market Report 2021: COVID-19 Implications And Growth” ReportLinker states that the change in growth trend is mainly due to the companies stabilising their output after catering to the demand that grew exponentially during the Covid-19 pandemic in 2020. The market is expected to reach US$37.77 billion in 2025 at a CAGR of 25.7%.

The regions covered in the report are Asia-Pacific, Western Europe, Eastern Europe, North America, South America, Middle East, and Africa. While North America was the largest region in the open banking market in 2020, Asia Pacific is expected to be the fastest-growing region in the forecast period.

Main findings

The report notes that the main types of services in open banking are transactional services, communicative services, and information services. Trade finance and cash management services are provided by transaction banking to businesses, government agencies, and other financial organisations.

The different financial services include bank and capital markets, payments, digital currencies, value-added services and are deployed in various modes such as cloud, on-premises, hybrid. The various distribution channels include bank channels, app markets, distributors, and aggregators.

The open banking market consists of sales of open banking services by entities (organizations, sole traders, and partnerships) that unites banks, third parties, and technology providers, allowing them to exchange data easily and securely for the benefit of their consumers. Open banking is a banking practice in which third-party financial service providers can use application programming interfaces (APIs) to gain access to consumer banking, transactions, and other data from banks and NBFCs.

These APIs deliver a secure way to share financial information between two parties and makes it easier for consumers to compare the details of current accounts and other banking services.

The report also comments on the surge in usage of online platforms for making payments, which is contributing to the growth of the open banking market. The digital payment system is rapidly expanding with developing payment methods, increased e-commerce use, improved broadband access, and the advent of new technologies.

Payment gateway APIs are used by online platforms such as phone pay, Paytm, and Google Pay to manage recurring billing, and these APIs are often used in open banking. For instance, in August 2021, Google Pay, a US-based digital wallet platform crossed one billion transactions.

Additionally, in July 2021, PhonePe, a digital payments network, set a new milestone by processing 1.5 billion transactions through the unified payments interface (UPI). Therefore, the rise in the use of online platforms for making payments is expected to propel the growth of the open banking market in the coming years.

Big data analytics – used to collect, process and analyse structured, and unstructured data – is an emerging trend in the open banking market, the report notes. The major use of big data analytics is to get business insights into the data. In the open banking market, big data analytics is used to personalise the services for improving the customer experience.

For instance, in 2020, HSBC Bank increased its investment in the use of artificial intelligence (AI) and big data analytics techniques to manage financial crime risk.

In June 2021, Visa Inc acquired Tink, a Sweden-based open banking company that helps Europe’s banks, fintechs, and start-ups develop database financial services, for US$2.15 billion. The acquisition is expected to accelerate European open banking adoption by providing a secure and dependable platform for innovation. As a result, customers will have more control over their financial experiences, including financial objectives, managing their funds, and financial data.

Report outlines global vision for trade finance

A “new vision for the global trade finance ecosystem” that could allow institutional investors to help fill the broadening finance gap is outlined in a report by the International Chamber of Commerce (ICC) in collaboration with Fung Business Intelligence and supported by McKinsey & Company.

The ICC says that the report is based on a year-long effort by the ICC Advisory Group on Trade Finance to raise awareness and address the challenges facing micro-, small- and medium-sized enterprises (MSME), particularly in the emerging markets, in accessing the trade finance needed to support their growth and the global recovery.

According to the Asian Development Bank, the trade financing gap reached US$1.7 trillion in 2020, an increase to 10% of global goods traded, from 8% in 2018. MSMEs account for 40% of trade finance application rejections by banks.

The report is based on over 150 interviews with end-users and subject matter experts in 12 countries, and an ideation and review process covering leaders from trade, finance and technology.

“The difficulties faced by small businesses in accessing trade finance have almost become an accepted facet of international commerce since the global financial crisis,” said ICC Secretary General John W.H. Denton. “[The] report is a direct challenge to this status quo — setting out a roadmap for systemic change to address the root causes of the estimated US$1.7 trillion trade finance gap.

“If we want to enable trade as a real vector of peace and prosperity in the wake of Covid-19, it’s time to stop applying sticking plasters and tackle the need for wholesale reform and effective digitalisation of a market which is currently unable to serve the needs of the real economy.”

The ICC adds that today’s trade finance system is characterised by a complex web of decades-old manual processes, and more recent, isolated “digital islands”—closed systems of trading partners formed to address specific pain points. The report therefore sets out a road map for digitally connecting and facilitating interoperation among existing networks through sets of shared standards, processes, protocols and guiding principles.

“With global trade under enormous strain, there is an urgent need to overhaul and modernise financial systems that support the lifeblood of the world economy. Buyers and suppliers would like to see more liquidity, lower costs, less transaction complexity, and greater availability to credit markets,” said Victor Fung, Co-chair of the ICC ATF. “The entire trade ecosystem has to become far more efficient and benefit from digital innovation.”

The construct set out in the report proposes three main logical blocks:

• digital trade enablers, which would be standards enabling digitisation of both trade finance and global trade at large;
• standards enabling specific digitization of the trade finance industry;
• best practices for trade finance interoperability. Governance could be provided by a single global industry entity or by a consortium.

“We are proposing real-world solutions, many of which already exist in some form, to address long-standing issues in global trade finance: the report sets out a global framework for existing and future standards, protocols, and principles, with the goal of connecting all those who participate in the global trade finance ecosystem to both present and future networks,” said Bob Sternfels, Global Managing Partner of McKinsey. “This will be a complex project. But its benefits would be both wide and deep, with the prize being a global economy that is more sustainable and inclusive.”

Key to the vision is to drive access for MSMEs to these emerging digital processes by scaling innovations such as digital identity, paperless trade, and transaction-based credit assessment in addition to traditional balance sheet credit scoring.

The full report can be accessed at https://iccwbo.org/publication/reconceiving-the-global-trade-finance-ecosystem

Wise H1 revenue up by 33%

Shares in fintech company Wise, formerly known as TransferWise, have risen after it reported a 33% increase in revenues for the first half of its financial year.

The cross-border money transfer specialist saw H1 revenues rise to £256.3m (US$342.3m), reflecting higher customer numbers who were attracted in part by lower prices. Its customer base grew to 3.9 million in the second quarter, an increase of 23% from the same period last year, and it transferred more than £34bn for its customers in the six-month period, an increase of 44% from H1 2020.

The company added that its payments also became faster during the second quarter, with 40% of all transfers delivered instantly during the period

Wise listed on the London Stock Exchange in July this year and has established itself as one of the UK’s most well-known fintech unicorns with a value in excess of US$1bn (£750m).

The H1 results follow Wise’s recent announcement of a partnership with Fruugo, a cross-border e-commerce marketplace. According to the blog post, Fruugo merchants can use Wise Business account details to receive earnings in various currencies.

“As a trusted and growing platform for e-commerce, it is extremely important for us to continue to provide the best and most cost-efficient solution for our retailers to take their products global,” said Tony Preedy, Managing Director at Fruugo. “We believe that international selling should be as simple as selling to customers in your own country. With Fruugo, any retailer can reach a global audience, and we’re delighted to partner with Wise and offer use of its platform to the ever-growing retailer base we have here.”

The deal reflects Fruugo’s aim of offering its retailers the ability to receive in their own domestic currency when arranging transactions on the platform. “It can sometimes be costly for retailers to receive funds internationally,” added Preedy. “A key part of Fruugo’s platform is to provide the most inexpensive and efficient way for retailers to remit funds in their own currency. This latest partnership with Wise will enable Fruugo to continue to provide a seamless and inexpensive solution and enable retailers to sell more worldwide.”