New data published from open banking platform Tink reveals that financial institutions in the UK are ramping up their investments in open banking, as the industry mindset moves away from purely PSD2 compliance and towards value creation. 

The survey — based on 290 senior decision makers at financial institutions in 12 European countries —  found that 73% of UK respondents said open banking spend has increased since 2019. This is higher than all other European countries, suggesting that the UK is leading the way in open banking. In fact, almost half (47%) of UK financial institutions are spending between €1 million to €49.9 million on open banking, while 33% reveal they are spending over €100 million. The magnitude of these investments shows that open banking has become central to digital transformation programs in the UK.

Figure one: Spending on open banking objectives by country 

When it comes to which department is footing the bill for open banking, the research revealed that they are quite evenly distributed within UK financial institutions. IT departments are responsible for the largest share (30%) of the spend, followed by product, compliance and risk, and operations departments — each accounting for 23% of the investments. 

The benefits and barriers to open banking investment 

IT modernisation was by far the biggest driver for these open banking investments — cited by 60% of UK financial institutions surveyed (compared to the European average of 39%). This was followed by the opportunity to improve customer experience (47%) and process optimisation (33%).

Yet barriers persist — with regulatory restrictions seen as the top inhibitor of investments by half (50%) of respondents. Meanwhile, lack of customer demand or awareness (37%) and lack of budget (37%) also appear to be the leading barriers that open banking needs to overcome. 

Payback time: reaping the rewards of open banking 

Regardless of this, the UK’s financial institutions are optimistic about the open banking payback period, with almost half (47%) projecting a payback within four years or less.

It also became evident that the financial institutions clearly recognise the huge short-term commercial opportunity that open banking offers. Revenue growth from new customers emerged as the most important success metric for open banking investments amongst 50% of respondents. This was followed by revenue growth from new products and services (47%) and revenue from developer services and APIs (43%).

Rafael Plantier, UK & Ireland Country Manager at Tink, said: “The results from the survey provide evidence that the industry is on the verge of a monumental shift towards data-driven solutions, with open banking becoming intrinsic to the digital transformation of financial institutions. The size of the open banking investments proves that the UK’s financial institutions are now thinking beyond compliance and looking ahead to the commercial opportunities it can offer. 

“Today, as we wrestle with the new social and economic realities of life with Covid-19, it is vital that the UK’s financial institutions continue to prioritise the development of innovative banking solutions that are tailored to the individual circumstances of customers and businesses. This will deliver immediate value to financial institutions by helping them support their customers in new ways and provide financial services seamlessly over digital channels.”

Imran Gulamhuseinwala, Implementation Trustee for Open Banking Ltd added: “To date we have made good progress with Open Banking. User numbers sit at over one million and are growing rapidly. The CMA has also approved the updated Roadmap for Open Banking, which will complete the implementation aspects of Open Banking in the UK. We are fortunate enough to have a dynamic ecosystem of TPPs who are leading this transformation and developing innovative new propositions on the platform. There are currently 250 TPPs who are at various stages of authorisation for using the Open Banking proposition. Banks needed to invest in their core technology to get ready for Open Banking and the most forward-thinking are already leveraging this investment to drive their own technological transformation, as well as realising new opportunities to innovate and create value.”

To download the report, please go to https://tink.com/resources/reports/investments-and-roi/