While financial service providers recognise the promise of open banking, few feel that they’re in the best position to take advantage of it.

According to a new report, The State of Open Banking 2019, shared exclusively with Verdict by application programming interface (API) integration platform Cloud Elements, more than half of financial services CEOs believe that their competitors are “significantly more” ready for open banking than they are.

This comes as financial service providers prepare to meet the PSD2 (Payment Services Directive) deadline. The European Commission directive is set to come into full effect on Saturday, 14 September, forcing EU-based banks and institutions to embrace open banking by opening up their internal data to other EU companies.

Read more: What is What is open banking and why does it matter to business?

The EC is introducing this in a bid to encourage innovation in the space by making it easier for alternative providers to compete with larger banks, and provide consumers with more choice.

Based on more than 200 surveys carried out on IT professionals in financial services by Cloud Elements, some 46% recognised that open banking will help to improve innovation in the industry. Likewise, 44% said it would also both improve compliance and help to speed up business-to-business communication.

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Beyond enabling customers to access banking services through third-parties, what benefits could API integration offer providers or customers post-open banking?

Some 58% of banks and 65% of fintechs state that open banking is currently their main commitment. Likewise, 94% believe that their business encourages digital innovation.

However, despite the looming deadline, just 24% of banks and 29% of fintechs confirmed that they are ready to comply with PSD2, let alone ready to begin innovating.

Financial institutions reveal open banking’s biggest challenges

According to the report, cultural issues are most responsible for slowing down the pace of change in the industry, according to 28% of financial service providers. 

Notably, many feel that their organisation’s unwillingness to take risks is a major issue in the pursuit of open banking innovation. This is particularly a concern for larger organisations, with smaller companies showing more willingness to take risks when it comes to open banking.

Is a risk averse culture in your organisation the biggest barrier to open banking?

Legacy issues, such as outdated technology and systems, is also a hurdle that many organisations must first overcome.

The challenges noted in the surveys also differed depending on the individual’s job role. CEOs were more likely to point to a lack of corporate vision as the biggest challenge in open banking, while CTOs claimed that a lack of staff, budget, time, skills and resources were holding their employer back.

“With PSD2 being rolled out in September this year – following in the footsteps of Open Banking legislation last year – it is intriguing to see the different perceptions of IT decision makers about their main challenges to open banking,” Mark Geene, CEO of Cloud Elements, told Verdict.

“A more innovative mindset can be adopted using effective API technology – something FIs will need to do sooner rather than later.”

Over 90% of the businesses that contributed to the report claimed to have introduced an API strategy in response to the changing occuring in the industry, and API budgets are expected to grow by 8% year-over-year from £733,000 on average in 2018 to £791,700 this year.

However, challenges continue to hold back API-driven innovation. Yet, with time, Geene said, the more progressive financial services players will begin to be rewarded, and the open banking laggards will quickly follow suit.

“API technology allows the customer to be linked to various offerings and applications, ensuring they have a more seamless user experience. Once customers start seeing the positive impact of open banking, Financial Institutions will quickly shift their thinking.”

Read more: Adapt to survive: What’s next for open banking?