New research published by open banking platform Tink reveals an increase in spending among Europe’s financial executives, with 47 per cent saying their open banking budgets have risen in 2021. This follows a challenging year in 2020, where financial institutions battled budget restrictions against the race to serve more customers digitally.
Tink’s research, based on 308 senior decision-makers at financial institutions in 12 European countries, found the COVID-19 pandemic impacted budgets for 93 per cent of financial institutions, with 23 per cent saying the impact was significant. At the beginning of 2020 executives expected to spend, on average, €50-100 million on achieving their open banking objectives. With the huge challenges of the pandemic, the average spend landed at €32 million in 2020.
Retail banks and wealth management firms bucked this trend – spending, on average, €84 million and €79 million respectively on their open banking objectives in 2020. This discrepancy in budget allocation was likely driven by the need to put significant investment towards the creation of compliant PSD2 APIs, as well as the task of overhauling legacy infrastructure to meet current and future open banking needs.
A breakdown of the data reveals how open banking investments have increased during 2021, with 58 per cent of wealth management firms experiencing the strongest increase in budgets. This is followed by 55 per cent of wholesale banks, 51 per cent of credit providers and 50 per cent of challenger banks.
Tink’s findings reveal payment-related services are top the spending priorities for companies’ spends in 2021. Specifically, 72 per cent of financial institutions see payment initiation services as the most important use case to their business. This suggests increasing awareness of the need to develop payment solutions that provide more streamlined services for customers.
Improving the customer experience and onboarding process was the second most important area of enhanced banking use cases this year – with account verification, identity verification and asset verification equally weighted amongst 71 per cent of executives. These use cases not only make it easier for banks to make more informed credit decisions for their customers, due to the real-time, holistic view of their data, they also make it simpler for users to switch or sign up with new financial services providers.
The deployment of risk-related use cases is also considered extremely important, with risk and creditworthiness assessments a priority for 71 per cent of financial executives.
Although carbon footprint calculation appears at the bottom of the list, it’s still a highly relevant use case for most respondents at 62 per cent – particularly in the retail banking segment, where it ranked as the fourth top priority overall.
“As open banking moves towards mainstream adoption, we’re not surprised to see investments in data-driven initiatives increasing,” Tink co-founder and CEO Daniel Kjellén said. “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 both consumers and businesses will benefit from.”
“As we look to 2022, the findings of this report suggest that financial institutions should move fast, as open banking is tearing down barriers and allowing new players to enter the market. To keep a competitive edge, it’s important to focus on enhancing the core business, and consider working with partners to create open banking solutions that can drive value across all areas of financial services. Creating an ecosystem of players that work together will be crucial as we move towards a new age of digitalization and enhanced customer experience.”