Driving Open Banking Growth: Regulations Or Leave It To The Market?
The answer will surprise you!
So, what’s the best way to promote open banking regulation or market forces? The answer is unclear because while open banking is a global movement, achieving it requires local action.
The “Global State of Open Banking and Open Finance Report” examines open banking in 95 jurisdictions and divides nations into those that promote it through regulation and those that use market forces.
The report shows that 54 jurisdictions promote open banking through regulation-led approaches, while 28 follow market-driven models.
Unsurprisingly, developing nations (most of Asia) make up the majority of market-driven nations, while advanced economies rely on regulation.
👊STRAIGHT TALK👊
So which is more effective regulation or market forces?
Shockingly the success rates are a DEAD TIE!
The data show that of the 54 relying on regulations, only six nations "fully unlocked open finance,” while for the 28 relying on markets, three nations accomplished this.
This shows that 11.1% of regulated nations succeeded versus 10.7% for market-led nations! If that isn’t a tie, what is?
If that sounds messy, it is, and it shows how there is no single formula that can be applied to make open finance initiatives successful.
👉TAKEAWAYS
1. Global expansion, local differences
Open banking is now established globally, with open finance gaining traction but remaining at a relatively early stage. Frameworks differ significantly across jurisdictions based on each one’s policy priorities, financial market structures, and levels of digital readiness.
2. Regulation is coming, but slowly
Two primary approaches have emerged – 54 jurisdictions follow a regulation-led model, while 28 jurisdictions are primarily market-driven. Notably, 18 jurisdictions with market-driven approaches are now planning or developing regulatory frameworks, signalling a gradual move towards increased oversight.
3. Regional trends: clustering of approaches
Regulatory approaches show regional clustering. For instance, Europe, Central Asia, and the Middle East and North Africa predominantly follow regulation-led models, while Sub-Saharan Africa and Asia Pacific largely adopt market-driven approaches.
4. Competition first, innovation second
among 44 jurisdictions, fostering competition in financial services stands as the leading goal of open banking and open finance initiatives.
5. Regulation broadens data horizons
Regulation-led jurisdictions tend to have broader data coverage across 6 key categories compared to market-driven ones. This relationship suggests that regulatory oversight can positively influence the scope of data sharing.
6. Small steps toward Open Finance
Both regulation-led and market-driven models show early but limited progress in integrating additional financial sectors, such as open insurance.
7. Adapting to future needs
Both models are expected to evolve in response to technological advances, customer expectations, and regulatory developments.
Please restack!
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