Open Banking grows up – but who is making the gains?

Five years after firing the starting gun on Open Banking (OB), it looks like things are going well in the UK. However, a key question remains – especially for the fintechs delivering Open Banking services to banks.

Open Banking grows up

Simply put, how does anyone make money out of Open Banking services?

First the good news. In January, the UK’s Open Banking Implementation Entity (OBIE) announced some 7 million Britons used Open Banking services – primarily account-to-account payments – that month.

Of these, around 1.2 million were first-time users, and the total user base now equates to around 10 percent of the UK’s adult population. As James Hickman, CEO of Ecospend, notes, the UK “is now the largest digital payments market in Europe – though we’ve yet to see an inflexion point.”

“The UK now has Europe’s largest Open Banking market by some distance.”

UK Open Banking payments growth has certainly been impressive, and it’s always refreshing to see results and activity, as opposed to the endless announcement of plans and preparation.

Ecospend announced that UK tax agency His Majesty’s Revenue and Customs (HMRC) had processed some £2.3 billion of tax owed using account-to-account payments.

While propositions in Open Banking mostly involve payments, there are also offers relating to financial management, insurance and other areas. With more than 130 live products, the UK now has the most Open Banking products of any European market – by some distance.

Open to making money?

Questions over how to make money from Open Banking disturb this cosy picture of success.

Conceived from the start as a means of delivering greater competition in financial services and challenging entrenched market positions, it’s not hard to see how OB services are good news for consumers, especially if they offer more choice, better services, lower cost and faster settlement times.

That said, companies might fairly ask how they make a profit from OB – especially the fintech sector, which is currently suffering from a dearth of investment.

“Investors are asking questions about how to monetise Open Banking.”

Furthermore, banks in some peer European markets have been less than enthusiastic about Open Banking, part of the reason why it has yet to take off elsewhere. The UK’s success is built on a regulatory mandate, not necessarily on bank willingness to change.

The obvious ways to profit from OB are either license agreements for products embedded into bank systems, which can either be on a per-user or transaction basis, or through straight per-month, user or transaction service fees.

Either way, the challenge for fintechs and other OB services is to recoup what can be pretty significant development costs at a rate that makes the purchase decision for banks attractive.

In other words, making their services cheaper, faster and better than what already exists.

It could be argued fintechs have an open goal, inasmuch as the overall cost of payments rose by 12 percent in the last year alone.

But if that’s the case, then why aren’t more fintechs showing profitability and revenue growth?

Since November last year, we’ve seen a slew of layoffs in the UK and across Europe from fintechs not making their numbers.

Most recently, BNPL giant and fintech darling Klarna has said it’s “making progress” towards profitability – despite having been founded 18 years ago, and being the European segment leader for years.

It’s likely that some Open Banking services will end up being profitable as consumer use continues to widen: but just as likely that we’ll see more fintech blood on the carpet before that happens.

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