Open Banking - Worth the Investment?

Open Banking - Worth the Investment?

Open Banking has become one of the biggest developments in fintech and arrived at a time when financial services needed a shake up. Traditional institutions such as retail banking, floor trading, and wealth management were becoming less appealing, particularly, to a  younger generation of earners whose phones had become a “third hand.” They expect their phones to be all things - communication channel, entertainment provider, money-maker, and personal bank - and Open Banking is contributing to just that!

Cashflows through Open Banking

Open Banking was established and implemented by the Payment Services Directive 2 (PSD2) in 2018. The purpose was to grant Third Party Providers (TPPs) open access to consumer banking including transaction and other financial data from banks and other financial institutions. By providing application programming interfaces (APIs) stipulated by the Open Banking directive, banks give consumers control of their own data. This includes giving them the choice to share their data with authorised third parties like VibePay. In this way, consumers can compare deals that work best for them, analyse and manage their spending, and securely send money to others.

With all of these benefits, it comes as no surprise that the Tink 2021 report, “Following the Money,” found that financial institutions have been allocating large parts of their budgets towards Open Banking - the report states as much as €32.1 million. Moreover, many financial experts are projecting that the use of Open Banking APIs will increase by 50% within the next three to five years.

It seems that the world has noticed the shift towards APIs and the growth of digitalisation. Whilst some initial surveys reported fears of security risks with Open Banking, consumers’ need for control of their finances seems to have the upper hand. The global estimated value for Open Banking is projected to be $43.15 billion by 2026. In line with these increases, TPPs have also grown to almost 300 regulated providers in the UK, with Payment Initiation Services being the main service offered. It is clear that existing players, new ones, and those planning to enter the market, will need to embrace Open Banking as things are changing.

Payment initiation

Payments are considered the biggest opportunity with 72.1% of respondents in a poll citing it as the most important use case. The number of payments using OpenBanking has also grown exponentially over the years, from 320,000 payments in 2018 to over 4 million in 2020.

At VibePay our main goal is to make payments easier for our users and when we were established, we made the conscious decision to do it via Open Banking. Many of our users are GenZ - who move quickly through space and time, require efficiency, accessibility and convenience - and we knew that the innovations that Open Banking offered would be critical for our success. VibePay offers more than just initiation of payments though, as account information services also play a big role in our product offering. There are also many social features in our product. Like many successful  financial institutions much of our funds have been allocated to building excellent technology that compliments the fast-paced Open Banking domain.

A major factor which contributes to the growth of the Open Banking market is the rapid increase in the number of apps and services available. In addition, more consumers engage directly with their finances, technological updates to regulations and competition laws are accelerating, and technology is continually evolving. At VibePay we are glad to say that we have been ahead of many competitors by taking advantage of this opportunity, and using it to make life that much easier for our Vibe community.

Stephanie @VibePay