New research from Cognizant has revealed significantly varying levels of understanding of open finance’s benefits. The findings demonstrate that only neo banks see open finance as an essential component to their transformation strategies, while the majority (60%) of incumbents believe it has been overhyped.

This may in fact reveal a lack of commitment by incumbent banks to confront the challenges associated with open finance adoption and an unwillingness to take risks to improve customer experience. Eighty-seven per cent of incumbents report there being too much risk associated with open finance and more than 90% claim their customers are loyal to them without it. However, neo banks disagree, with only one in eight (12%) confident their customers would remain loyal to them without an open finance offering.

As a result of these attitudes, three quarters (73%) of incumbents are currently missing out on the revenue opportunities offered by open finance.

John Da Gama-Rose, Head of Banking and Financial Services, Global Growth Markets at Cognizant, says: “Neo banks, being smaller and more agile, are taking advantage of the opportunities afforded by open finance to reframe and expand their businesses. Most have already released several products and services and expect to continue innovating into the future.

“However, incumbents appear unwilling to engage any further in open finance adoption, with the findings suggesting they would rather wait and see how the rest of the industry manages the execution of their strategies before they start to invest.

Chris Allen, Director, Banking and Financial Services Consulting, UKI at Cognizant, contributes saying “This puts incumbents at risk of falling behind. While they will always have a place in the market, if they don’t act fast, they could soon be viewed as utility suppliers on par with building societies, only offering limited customer experience.”

Cognizant’s findings show that 60% of neo banks are using open finance to unlock new business channels, compared to only 17% of incumbents. The findings also suggest neo banks could offer seven times more open finance services than incumbents by 2025; as a result, 60% expect open finance will enable them to flourish and take more market share.

Da Gama-Rose adds: “Incumbents must educate themselves on the benefits of open finance and accelerate its adoption. This means overcoming their preconceptions and tapping into the rich partner ecosystem that’s available to them, to help drive their open finance journeys at pace. Only by doing so will they have any chance of retaining their strong positions in the market as they are already playing catch up in terms of open finance’s customer value.”