How to choose an open banking provider.
The number of open banking platforms worldwide grew to more than 1,570 during the year to June 2022, with over 5,500 API products available.
Europe leads the world in deploying open banking. In 2022, there were an estimated 28.4 million active open banking users in the region and that number is forecast to rise to 63.8 million by 2024.
Globally, revenues in the global open banking sector were estimated at $16.1 billion in 2021 and are expected to top $128 billion by 2030, driven by the growth of contactless payments, ecommerce, and online gaming, as well as value-added services such as personal finance apps.
Ecommerce rose from 15% of global retail sales in 2019 to 21% in 2021 and is now estimated at 22%. Habits adopted out of necessity during the pandemic are creating a permanent shift in consumer behavior, with forecasts that global ecommerce sales could rise from $3.3 billion today to $5.4 trillion in 2026.
Open banking refers to financial infrastructure that enables API-based connections between banks/account providers and third-party providers (TPPs), allowing them to access customer data and provide account-to-account payments. The introduction of the Second Payment Services Directive (PSD2) in 2018 was designed to encourage competition and innovation by giving consumers full control over their own financial data, thereby enabling new business models and, as a result, creating more value for consumers.
As this shift in power continues to transform banking, TPPs are looking to work with open banking platforms that can leverage this new landscape to deliver better 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?
Finding the right open banking platform is all about choosing a provider that opens doors to the most opportunities, without compromising reliability or security.
Whether you’re looking to reduce development costs by outsourcing payments or want to expand your customer reach by accessing a worldwide network of banks, partnering with an open banking platform can help your business to scale quickly and cost effectively.
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.
Tap into a global banking ecosystem.
Open banking is lowering the barriers to entry for fintechs and other start-ups. 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 an established 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 are failing to address.
Scale is important for TPPs as they seek to reach critical mass. Open banking can help TPPs to increase customer reach and engagement, accelerate the introduction of new products, and improve customer conversion by reducing frictions in the onboarding process.
Some open banking providers also provide a white-label service, supplying TPPs with the technical infrastructure while allowing them to quickly bring their own branded solutions to market, remove regulatory obligations, and reduce legal overheads.
Build brand equity.
Establishing trust is one of the biggest challenges for up-and-coming fintechs. While the big banks have established customer loyalty (and inertia) over many decades, fintechs must build brand equity from the ground-up.
The good news is that research shows younger consumers are much more likely to switch financial institutions than their parents, opening the door for TPPs to bridge the gap between consumers and the legacy banks.
Open banking is set to fuel these shifting attitudes as the opportunity for fintechs to integrate their services with established banks through 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.
Digital-first customer experience.
Delivering a better experience for end users is arguably the #1 attraction of open banking for many fintechs. It’s also what consumers want. Millennial and Gen Z customers are easily put off by clunky apps and cumbersome onboarding, which is why partnering with the right open banking platform can 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 the UK, a recent survey showed that more than 10% of the population had used a TPP open banking app, with an overwhelmingly positive experience.
Rather than switching between different accounts, customers say they value the ability to view their finances in one place, gain insights into spending and saving habits, and the peace of mind that comes from being in control, especially at a time when many are struggling with the rising cost of living.
Delivering such a positive customer experience is only possible by partnering with an open banking provider that truly understands customer experience and can deliver seamless payments solutions.
For example, Klarna Kosma draws on more than 2 decades of experience delivering proven and scalable banking connections, as well as a suite of open banking products that can be integrated through a single API — from identity verification and payments to banking data. We pride ourselves on offering a smoother customer experience.
Cut development costs.
Cybersecurity, fraud and consumer protection are seen by regulators as the biggest risks in the fintech sector, suggesting that these areas will continue to be a focus of policymaking. Responding to evolving regulation in these areas can be a significant burden for emerging TPPs.
Partnering with a trusted open banking platform provides access to mature systems and licenses that would take many years and millions of dollars to develop as a stand-alone business.
Setting up your own banking connections is only the first step. Maintaining those links will incur ongoing costs, including employing a team of developers, regulatory updates, legal services, and even customer support.
Partnering with an open banking provider such as Kosma simplifies everything. Costs are transparent and predictable, and TPPs only need to integrate a single API to access bank data, take payments, and verify digital identities.
Klarna Kosma’s established bank network gives us both the technical capability and market exposure to support fintechs and TPPs with sophisticated open banking solutions.
We offer powerful tools to help financial innovators develop intuitive multibanking solutions with seamless UI flows. We also offer a white-label service so your business can reap the benefits of conversion optimization while also maintaining brand consistency with a bespoke on-brand front-end.
Kosma harnesses open banking to break down barriers in finance and improve connectivity between banks, TPPs and end-users. We’re focused on simplifying open banking and connecting TPPs with more than 15,000 banks in 27 markets. With a single API and just a few lines of code.