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Industry and regulators alike seem to have accepted that open banking may not have been the success story everyone was hoping for — but it is an "ultramarathon" not a "sprint".
Hard truths were shared this year at Money 20/20, as both regulators and industry veterans said that open banking was failing to deliver at the moment.
“It is not really a game changer,” said Patrick De Neef, chief innovation officer at De Nederlandsche Bank, while speaking on the "Open Banking: The Quest For Harmony" panel.
De Neef said that when the revised Payment Services Directive (PSD2) was thought up and implemented, there were high expectations that this new piece of regulation would facilitate innovation, and new products for clients and for consumers.
“In all honesty, if you look back at what it really brought in terms of the kinds of offerings that are out there in the market, it has been a bit of a disappointment, right?” he said.
Other attendees appeared to agree.
"Open banking has been a disappointment when you consider that screen-scraping and other methods worked better than the current APIs do,” noted Andrew Edem, global head of innovation at PPRO, speaking to VIXIO on the conference floor.
“Banks did not have to do anything in the past and this has essentially become a cost of business,” he explained.
Open banking was possibly overhyped in the first place, acknowledged Jonathan Vaux, head of propositions and partnerships at global payments platform, Thredd.
“One of its key constraints at the moment is that it is not delivering sufficient value for customers, as the banks are focused on compliance, not customer value.”
However, Vaux continued that payments innovation is always a slow burn.
“People were initially saying Apple Pay hadn't succeeded but it's proven to be game-changing."
This is a consensus that now appears to be forming in the European payments industry — open banking will not be a sprint.
Jens Olsson, a fintech advisor attending Money 20/20, told VIXIO that open banking still has plenty of potential left to fulfil. “In hindsight, it could have been done in a different way. Having a model with clear and right incentives with fair value and risk distribution is critical to success going forward.
“However, consumer adoption will still take a considerable amount of time,” he said. “With any new payment service, there is a decades-long runway. This has been proven with card payments which took several decades to reach its current adoption and has been proven also with newer payment methods.”
For Olsson, open banking cannot be considered a quick fix. “Being in this market is not a sprint, nor a marathon, but an ultramarathon.“
"The reality with financial services innovation is that everything takes longer than expected,” echoed James Allum, regional head for Europe at Payoneer.
“There seems to be a window of up to ten years for adopting new payment methods at scale, and open banking was perhaps hyped up too early,” he said. “The industry is just starting to see commercial traction, but it will take longer for mass market engagement."
There are green shoots for open banking that reflect this.
According to figures from last June in the UK, around 10-11 percent of digitally-enabled consumers are active users of an open banking service.
This is up from 6 to 7 percent the year prior.
“There is the beginning of a genuine ecosystem,” said Sheldon Mills, consumer, and competition chief at the Financial Conduct Authority, who was speaking on the same panel as De Neef.
Mills explained that, in the UK, 7m individuals are signed up to open banking, as well as several hundred thousand small and medium-sized businesses. It is generating millions of pounds worth of account-to-account payments.
“However, there are challenges as to how you scale that up, such as getting customers to be continually interested in open banking, and how you move from the banks paying for most of the system and turning it into a commercial model.”
De Neef meanwhile said that data is the priority moving forward. “Fairness and compensation for actually distributing the data is an aspect that you could consider a lesson learned when you move from PSD2 to PSD3, to make it more of an ecosystem.”
“When you look at the incentive schemes, it is really about people who want to use the data,” he said. “The people owning the data, us as consumers but also the institutions that have the data and keep it safe have no conversations for that.”
How open banking moves forward very much depends on what the regulators do next. In the UK, the Joint Regulatory Oversight Committee is gradually moving through its plan for the ecosystem, which was launched in April.
When it comes to the Open Banking Implementation Entity’s future iteration meanwhile, it seems inevitable that the funding model will be adjusted to account for more than just the CMA9 banks.
In the EU, all is up for grabs until the European Commission makes its PSD3 and open finance proposals later this month on June 28.
Being touted as “more of an evolution than a revolution” by commission officials, it is anticipated that the open finance proposal, in particular, will consider charges for third-party providers to access banking data for some products.
