Kieran Hinessenior analyst at Celent‘s Banking, offers his perspective on Money20/20 Europe and what is happening around the open ecosystem.
Now that the dust has settled on Money 20/20 Europe, I wanted to share my thoughts on the event.
First, the staff. I’m far from the first person to comment on how great it was to return to a major event after two years of virtual conferences, but I don’t think I’ve ever used the phrase “It’s great to finally meet you in person!” so many times.
With so many people to catch up to, I had a busy meeting schedule and spent most of my three days in Amsterdam running through the exhibit hall between meetings. I would like to thank everyone I met for their time and ideas. Virtual meetings are good, but nothing replaces a face-to-face conversation.
My conversations at the event largely focused on what’s happening around the open ecosystem (Open Banking, BaaS, and integrated finance). In short, there is a lot going on. In 2020, bank-led innovation around Open Banking was much closer to a concept than a reality. In the meantime, an extraordinary amount has changed. While Open Banking is still in its infancy, it is now delivering material (and commercial) benefits to a growing number of banks.
Everyone at Money 20/20 will have their own takeaway from the event depending on who they met there. Based on the discussions I’ve had, there are three broad themes to share.
Open Banking payments are growing rapidly
While much of the early conversations about Open Banking focused on transaction data use cases (and there are plenty), Open Banking Payments (OBP) is now one of the hottest topics. hottest in the industry and were a big theme at Money 20/20 Europe.
What do we mean by Open Banking payments? As an “on-ramp” to existing account-to-account payment rails, the payment initiation APIs available as part of Open Banking in Europe enable real-time credit transfer to be integrated into a new or existing customer journey. Examples include bill payments, billing processes, funding digital wallet accounts, or offering OBP as a “pay by bank” option in a digital merchant’s payment page. Some of the top providers in this space at the event included Token, Plaid, Yapily, Tink/Visa, Truelayer, and Mastercard.
This is a rapidly growing area of the payments industry, and although overall volumes remain low, they are growing rapidly. This is especially true in markets such as the UK, France, Germany and the Nordics, where Open Banking APIs achieve high levels of quality and availability. This space is still very nascent but will continue to grow strongly in 2022 and 2023 as the ecosystem of merchants accepting OBP and customer familiarity with the experience grow stronger.
One of the most interesting changes in this space has been the growing focus on OBP in digital commerce. In our 2021 Now is the Time for Open Banking Payments report, we highlighted that this is a significant long-term opportunity for the industry, but one that will take time to materialize given the strong alternatives in the market. digital commerce payments. It will take time for customer adoption to begin to grow in these areas; however, it should be noted that each of the vendors offering services around OBP focuses on building partnerships with PSPs and merchant acquirers.
As with other areas of Open Banking, OBP will become an increasingly important customer touchpoint for banks. Ensuring that the user journey runs smoothly when the customer interacts with their account provider will become a “moment of truth” issue for customers and should be a priority. The most innovative banks are already looking to integrate OBP into their own workflows and offerings to improve the efficiency of their operations and the user experience in various ways.
Vertical use cases are gaining importance
Looking more broadly at vendors offering infrastructure services to fintechs and challenger institutions, it is clear that there has been a shift in go-to-market strategy. The previous focus on delivering capabilities as “building blocks” for innovation is beginning to give way to a focus on tightly packaged solution sets aimed at specific workflows or business domains. with high added value. The production of improvements to services such as payroll, accounting and for those in the real estate sector were all examples that were discussed at the event. While this may partly reflect the need to drive revenue growth in today’s market, it also highlights the growing maturity of this part of the ecosystem.
This approach is also not unique to fintech infrastructure service providers. One large transaction bank I met was open to their own change in mindset. While it once viewed its business as offering a suite of banking products to its customers, it now also focused on creating new sources of value by providing the services its customers needed to better serve their customers. Although this is a small step linguistically, it is a big leap forward in terms of business model and associated technology strategy. Open banking and the smarter use of transaction data have become central to its mission.
These examples highlight the shift the industry is currently experiencing in its thinking about integrated finance. Where this was once viewed through the narrow prism of product delivery, the debate is now much more nuanced about where and how providing access to data and services in existing workflows can unlock new value for customers. . This leads to new thinking and a new understanding of very specific customer problems and how financial institutions can solve them through smart integrated financial strategies.
When it comes to fintech, the smart money is in the plumbing
Many times I have heard friends and family say they should have been a plumber when they just received a bill for work on their heating or water system. While this isn’t a sensible career move for someone as lacking in hands-on skills as I am, it definitely demonstrates the value of providing (and maintaining) critical infrastructure.
This is also true in today’s fintech ecosystem. The same way everyone wanted to be the customer interface in the early days of fintech, the focus now is on the infrastructure that enables others to innovate. While far less sexy than being a top B2C brand, doing the legwork for these innovators is now a lucrative space in which to operate. Plaid, Token, Yapily, Tink/Visa, Modulr and Railsr are all big players in this market segment, looking to develop the best solutions in their niches to thrive.
In hindsight, that was always likely to happen. As a B2C entrant, it’s incredibly difficult to build a customer base that can generate the revenue needed to be self-sufficient. Several of the biggest fintech unicorns have yet to break even, for example, and the number of challenger banks reaching that point is even smaller. Providing the infrastructure for these businesses to succeed is therefore a much more sensible place to operate.
Growing interest in integrated finance and the innovation facilitated by Open Banking will lead to further success for infrastructure players who get the right deal. Enabling established banks to be more competitive in these areas will become increasingly lucrative over time, as product and service innovation will increasingly focus on how to leverage these concepts to deliver new value to customers.
About Kieran Hines
Kieran is a Principal Analyst within Celent’s banking practice. His research focuses on the impact of technology-driven changes in the retail and corporate banking sectors, with an emphasis on the role played by open banking, integrated finance, data and analytics. , and cloud technologies in the transformation of customer propositions and the long term. banking value chain. A seasoned analyst with nearly 20 years of industry experience, Kieran works closely with banks, vendors and payment processors on their technology and business strategies.
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