European finance firms increase open banking spend

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.