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European finance firms increase open banking spend

Financial services firms are increasing investment in open banking capabilities, with improvements to payment initiation and onboarding capabilities expected

Investment in open banking technologies by European finance firms has recovered this year after they held back spending during 2020.

In total, 47% of the 300 organisations surveyed by open banking fintech firm Tink said open banking budgets had increased in 2021.

The recovery comes after a challenging 2020, which saw expected average budgets fall to €32m from the projected €50-100m.

Tink, which was acquired by Visa for €1.8bn in June, found that investment in payment initiation technology topped the priority list for 72% of executives at finance firms.

The survey revealed that the Covid-19 pandemic had hit the budgets of 93% of companies surveyed, with 2% of these stating the impact was severe.

Daniel Kjellén, co-founder and CEO of Tink, said: “As open banking moves towards mainstream adoption, we’re not surprised to see investments in data-driven initiatives increasing. Financial executives have set their sights on a broad range of open banking use cases, from payments to credit assessments to carbon tracking, unleashing a new wave of value creation that consumers and businesses will benefit from.

“As open banking moves towards mainstream adoption, we’re not surprised to see investments in data-driven initiatives increasing”
Daniel Kjellén, Tink

Tink’s acquisition by Visa, as well as Mastercard’s takeover of another Nordic-founded open banking fintech firm AiiA, are evidence of a maturing tech segment in the banking industry.

Now their customers, the finance firms, are committing money to open banking services. According to the Tink survey, wealth management firms are experiencing the strongest increase in budgets with a 58% increase, while wholesale banks expect a 55% increase, credit providers 51% and challenger banks 50%.

Open banking services were made possible by the European Union’s Payment Services Directive 2 (PSD2), which came into effect in 2018. PSD2 enables third parties to access the customer data held by banks via application programming interfaces (APIs), if customer consent is granted, and offer services using this information. For example, a company, with your consent, can take a payment directly from your account without you leaving its website. In the UK, the Open Banking Regulation is its equivalent.

Almost three-quarters (72%) of finance firms said payment initiation was the most important use case for open banking. A recent study from Juniper Research supports this. It found that the global value of payments made through open banking will be $116bn by 2026, compared with just $4bn this year.

Kieran Hines, an analyst at Celent, said it was impossible to gauge open banking spending because it was an enabler of change rather than a defined spending area. “As such, spending on open banking will be spread across a range of different initiatives such as payments, lending and digital banking,” he said.

“For the most part, the initial requirements to support open banking in Europe, including the UK, were attached to compliance-related spending, as this was a regulatory mandate,” added Hines. “Spending on that side of things will be lower in 2022 than in prior years now that most banks have delivered what they need to already. Where there is growth is in wider projects to support product development and process efficiency in different areas of the bank.”

For example, he said here were strong use cases out there for using open banking to help customers to pre-fill their initial mortgage and loan application forms. “The investment needed to make that sort of thing happen would be part of the budget for investing in the mortgage origination solution rather than open banking in its own right,” said Hines.

The Tink survey found that improving the customer experience and onboarding process was the second most important use case for open banking.

Read more about open banking

  • The completion of complex open banking initiatives could still be over a decade away for many companies in the finance sector.
  • Competition and Markets Authority requests feedback on proposals to increase competition in the UK banking sector.
  • Open banking is a relatively new concept, having come into effect in Europe only in the past couple of years. So what is the state of play?

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