Open banking, according to the Swiss Bankers Association (SBA), incorporates a business model founded on the secure and standardized exchange of data between the bank and trustworthy third-party providers, which may also encompass other financial services entities. The SBA defines three key principles of open banking.

• “Standardized” denotes the necessity of standardized interfaces to facilitate seamless third-party integration and error-free data exchange, ideally based on established market standards
• “Secure” emphasizes the imperative need for technological safeguards to ensure data confidentiality and security.
• “Reliable” highlights the importance of maintaining system integrity by granting third-party access to the interface only after meeting stringent quality criteria and adhering to the highest technical requirements.

The pivotal element of this framework is collaboration, involving partnerships among traditional banks, FinTech companies, technology providers, and regulatory bodies. Traditional banks function as the custodians of customer data, ensuring its security and privacy, while FinTech firms harness this data to design and develop innovative solutions, meeting the evolving needs of consumers. Notably, major companies in the open banking market, such as Finicity (MasterCard), TrueLayer, Plaid, Tink, Yodlee (Envestnet), Tibco Software, Capgemini, Oracle, and Accenture, invest heavily in innovation through strategic partnerships and product development.
Open banking can be propelled either by regulatory mandates or market forces. When it is regulatory-driven, banks are obligated to share transaction data and permit third parties to initiate payment transactions. For instance, the European Union, including the UK and EU member states, mandates banks to open their data to third-party providers upon customer consent, notably through the revised Payment Services Directive (PSD2). On the other hand, in a market-driven approach, traditional banks are invited to partake in open banking initiatives. 

Contrary to many predictions that anticipated the demise of traditional banks, open banking is far from being the end of legacy banks. Although traditional banks may be seen on the losing side of the equation, mainly because they lose their historical monopoly over their clients’ financial data, open banking was not designed to outrank them but instead as a powerful ally. 
1. Enhanced Services and Innovation
Traditionally, banks handled all aspects of their services internally. However, the changing dynamics, with the rise of Open Banking, suggests a departure from this traditional approach. A shift towards specialized banking functions is becoming more prominent, offering customers greater freedom from bundled financial services offered by their primary banks. This empowerment allows them to opt for a wide range of financial products and services from various FinTech companies or even alternative banks, tailor-made to meet their specific requirements. For many banks, this represents an opportunity to streamline their extensive product offerings by divesting less profitable segments or outsourcing them to specialized FinTech firms equipped with the necessary resources and dynamism. It levels the competitive playing field, providing new players with an opportunity in a market once monopolized by established banks. Open banking prompts traditional banks to innovate, especially in response to the rapid advancements and innovative financial solutions brought forth by FinTechs. This growing ecosystem paves the way for exponential innovation and a multitude of business opportunities, benefiting both traditional banks and other financial institutions. Without open banking, banks would face substantial expenses in establishing full in-house development teams to achieve comparable offerings.
2. Banking Through Collaboration
Instead of engaging in cutthroat competition for specialised skills and resources, traditional banks can partner with relevant FinTech companies, a strategic move to access expertise without extensive hiring. These partnerships accelerate innovation, leading to improved services and stronger customer relationships. This, in turn, enhances their ability to attract new customers and retain existing ones. What was once a competitive rivalry between traditional banks and FinTech companies has evolved into a symbiotic relationship, where partnerships are key to customer engagement and retention. Many banks are forming partnerships with global FinTech companies to enhance their services. With over 26,000 FinTech startups worldwide as of 2023 and continued growth in the FinTech sector, these collaborative ventures are expected to rise. Forward-thinking traditional banks that embrace such collaborations gain a competitive advantage and exponentially increase their potential to align with emerging, user-centric solutions.