The number of global API banking platforms grew by almost 19% between Q4 of 2019 and Q1 of 2020.
The European Open Banking sector is predicted to exceed £7.2 billion by 2022 — leading some of the largest financial institutions to explore the applications of sharing financial information with FCA-approved service providers.
Open Banking refers to the free movement of financial information between banks and a growing list of approved third party providers (TPPs). The introduction of the Second Payment Services Directive (PSD2) in 2018 was designed to empower financial (and other) innovators by giving the consumers full control over their own financial data hosted in banks, thereby enabling new business models and, in consequence, larger value to the consumer.
As this shift in power continues to send shockwaves across the finance sector, third-party providers (TPPs) are in search of Open Banking platforms that can leverage this new era of banking to enhance customer experiences and improve financial access.
So, how are FinTech companies disrupting banking and what kind of providers are best-placed to empower TPPs across Europe?
Benefits of Open Banking Through a Trusted Platform.
Finding the right Open Banking platform for your FinTech is all about choosing a provider that opens doors to the most opportunities, without compromising on reliability and security.
Whether you’re looking to reduce development costs by outsourcing your Payment Initiation Services (PIS) or want to expand your customer reach by accessing a network of European banks, partnering with an Open Banking platform can help your FinTech scale to new heights.
Let’s take a look at four key benefits of partnering with a trusted Open Banking provider with a proven track record and established connections across the financial sector.
1. Tapping into a Banking Ecosystem Improves Competition.
One of the most exciting benefits of Open Banking is the opportunity to break down barriers of entry for FinTechs and other new value propositions.
While the majority of FinTech innovation is siloed from the traditional banking sector, Open Banking presents smaller TPPs with an opportunity to tap into a vast ecosystem of established banks and operate in a ready-made marketplace. Instead of viewing FinTech as a disruptive battle against the big banks, Open Banking encourages competition by welcoming smaller providers onto a level playing field.
Whether it’s sharing financial information with a bespoke mortgage, insurance or subscription broker online or managing multiple bank accounts through a dedicated dashboard, Open Banking helps Fintechs target hyper-specific pain points that the big banks fail to address yet.
Scale and diversity is important to exceed the critical mass for a service to add value to a TPP and increase the number of customers that can be reached through Open Banking. Tapping into an established banking ecosystem will accelerate a TPPs go-to-market strategy for new products and improve customer conversion by reducing barriers to entry in the onboarding process.
Some Open Banking providers even provide a white-label service by supplying TPPs with the technical infrastructure to enjoy the benefits of Open Banking via an established ecosystem, while also adding their own front-end design to capture their brand identity.
2. Building Brand Equity Supports Trust.
Establishing trust is one of the biggest challenges for up-and-coming FinTechs. While the big banks have established customer loyalty over many decades (if not centuries), FinTechs must build brand equity from the ground-up.
Luckily, research suggests millennial consumers are warming to financial services that are not directly managed by banks — opening doors for TPPs to bridge the gap between consumers and the big European banks.
Open Banking is set to fuel these shifting attitudes as the opportunity for FinTechs to integrate their services with established banks via a trusted Open Banking platform helps boost credibility and build brand equity.
The best Open Banking providers will leverage existing relationships with financial institutions and consumers to empower TPPs with secure access to a credible payment infrastructure that customers can trust.
3. Intuitive User Interfaces Improve Customer Experience.
The benefits of Open Banking for end users is arguably the #1 attraction for many FinTechs, with 28% citing customer experience as the single most exciting opportunity for their business. Similarly, with 81% describing enhanced customer experience as a key strategy (vs 69% in other segments), partnering with an Open Banking platform could be the difference between success and failure.
As hyper-specific FinTech products become increasingly popular, many customers are now using a number of different apps and tools to manage their finances.
In fact, more than 40% of digitally-active high-income consumers regularly use FinTech products. As you can imagine, moving between multiple apps and switching between different authentication processes can be overwhelming for customers.
However, relying on experienced Open Banking platforms for Account Information Services (AIS) and Payment Initiation Services (PIS) helps FinTechs deliver a simple and consistent user journey. Partnering with an Open Banking provider that offers an intuitive and widely available front-end interface streamlines customer experience.
For example, Klarna draws upon a decade’s worth of experience and insights to become the most proven and scalable AIS/PIS provider and offer unrivalled user experience. Our philosophy revolves around simplifying complex financial products to create a smoother customer experience for a growing fleet of TPPs.
4. Outsourcing Your Technical Infrastructure Cuts Development Costs.
A 2019 Global FinTech Report by PWC found that managing security, compliance and data-privacy risks is the biggest challenge faced by most FinTechs. The technical expertise and development costs required to build bespoke compliance systems and a reliable payment infrastructure can be an enormous burden on emerging TPPs.
Partnering with a trusted Open Banking platform can empower your FinTech with millions of Euros worth of software development and fully-compliant systems that would take many years to develop as a stand-alone business.
Outsourcing your technical infrastructure not only helps to cut development costs, but also negates the need for maintenance, regulatory updates, legal services, and even customer support.
Lightyears Ahead. Yet Only Getting Started.
Here at Klarna, we’re confident that our proven track record as a trusted bank and our established network of bank interfaces gives us both the technical capability and market exposure to support FinTechs with the latest Open Banking technologies.
We’re excited to lead the change in building a highly-connected banking ecosystem and simplifying Open Banking to empower smaller financial institutions. Klarna connects TPPs with 5000+ banks in Europe through a single API and just a few lines of code.
Learn more or request API Credentials for Playground.
To learn more about Open Banking, schedule a demo or request your API keys for our playground environment visit Klarna Open Banking. Let’s connect and get started. Enter your contact details below.