This won’t be the first Open Banking article you’ve read over the last couple of years. Speculation about Open Banking changing financial services has been dominating the trade press for years. While some interesting services have been developed, nothing has really shaken the industry and changed the direction. However, there are clearer signs that we are about to see Open Banking begin to alter the course of the industry and reset the way it operates. 

Investment, opportunity and risks

According to Statista, $705bn has been invested in fintech companies worldwide since 2016, which has funded many new and ambitious companies. Over the last three years Statista claims there have been 74,312 fintech start-ups, all looking to become players in Open Banking and create new opportunities. 

But what are these opportunities? Accenture released a report this summer analysing the predicted changes which Open Banking could bring to the industry. Their analysis, built on data covering 20 of the largest economies, responsible for over 75% of global GDP worldwide, predicts that as much as $416 billion in revenue will be at stake as the era of open data arrives. 

Accenture believe that, in some markets, financial institutions have become complacent about the threat that Open Banking poses to traditional business models. Yet the level of investment, and the sheer number of organisations looking to disrupt the established model, suggests that we are going to see increased momentum. 

The pace of change

Chris Hopwood is the MD of Financial Services Partnership, a marketing agency which advises financial services businesses on their growth plans:

“There are similarities with the dotcom boom in the late 1990s and the impact this investment had on the high street. There was huge investment in new ventures exploring ways to create products and services based on new technology. There was a prediction of rapid change. The large organisations were slow to react, and then became complacent as change didn’t occur as quickly as the predictions. Then, all of a sudden, the momentum took hold and they were struggling. When Open Banking really starts to have an effect, there’s a risk that it will catch the large institutions by surprise.”

Open Banking is likely to arrive at different times in different markets. Trying to predict which segments of the industry will see the biggest change is difficult. However, Hopwood believes the winners will be those developing propositions which have a clear commercial benefit and drive efficiency. 

“Anyone working in payments knows there are inefficiencies and opportunities to create increasingly cost-effective solutions. I think the payment industry is going to change substantially and the winners will be those who can gain acceptance quickly and develop a trusted reputation.”

The change in consumer payments

Account-to-account payments, now starting to be termed Pay by Bank, is an area which has caught the attention of VCs and there has been significant investment in a number of companies developing new technology in this space. Lisa Scott is the Chief Marketing Officer at Banked, one of several companies looking to take a lead in account-to-account payments. Essentially, these companies are building a new checkout infrastructure which allows shoppers to pay instantly and securely with a direct Bank payment instead of a card. Scott believes that some are simply providing an API connection, but the leaders will be those able to provide more, and which don’t have limited views about what is possible: 

“What we are trying to think about much more is the benefit for the end consumer. As such it’s important for financial institutions to partner with a specialist, global payments network built on modern banking rails, capable of providing a seamless customer journey. The real opportunity centres on two areas. The first is creating benefits which works for both the merchant and the end consumer. The second is maximising the number of completed transactions through an ultra-simple process. If you get all of this working efficiently then you have the means of challenging the established payment process.”

In addition, Scott believes the industry can’t just look at problems in isolation. ESG (Environmental, Social and Governance) and sustainable models will be a critical element of all future propositions for merchants and retail. If you’re working with financial institutions B2B they will need to show evidence of your green credentials to satisfy their procurement teams. If you are developing a B2C proposition, then there will need to be some element of ESG. 

“ThE citizens in advanced economies are trying to make better environmental decisions when they’re shopping, and this trend is likely to increase. If you don’t have sustainability as a central component of your strategic plan then you won’t gain acceptance and the trust of shoppers and merchants.  It’s important to use a platform that allows merchants to build their own ESG loyalty programme as part of the payment process – it’s something we see as a priority.”

The pace of change

The rate of development and acceptance will vary within different parts of the industry. Hopwood believes that payments will be at the forefront of Open Banking:

“For years, the payment industry has been used to managing the data flowing between organisations and ensuring it is packaged into a universal standard. The principle is to ensure the message can be understood and acted upon effectively as it moves between organisations. Essentially, Open Banking, and the move to Open Finance, is all built upon API standards. Payment companies will be able to test and launch new propositions with confidence. I think we’ll see them expanding their reach as they adapt more quickly to the changing landscape.”