Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Digital, NEO, Open Banking, Open Finance
Tap-to-Pay Transactions and Big Tech Dominance Is A Thorn for CFPB
Regulation and Competition | Sep 11, 2023
Image: Unsplash/Rahul Chakraborty
The article titled "Report Highlights Role of Big Tech Firms in Mobile Payments" from the Consumer Financial Protection Bureau (CFPB) discusses the influence of Big Tech companies on mobile payments, particularly tap-to-pay functionalities on mobile devices.
The Problem: Tap-to-Pay and Big Tech
Tap-to-pay usage in the U.S. has seen substantial growth, nearing an estimated $300 billion across Apple Pay, Samsung Pay, and Google Pay. It's predicted that digital wallet tap-to-pay transactions will grow by over 150% by 2028.
Apple and google are dominant in U.S. mobile: As of the second quarter of 2023, Apple's iOS was on 55% of smartphones shipped in the U.S., while Google's Android was on 45%.
See: Policy Blind Spot: The Interdependencies of Big Tech and Their Foothold in Financial Services
Regulating access: Apple's iOS devices do not allow third-party payment apps to access NFC technology, making Apple Pay the only option for tap-to-pay on iOS devices. Google's Android, on the other hand, does not restrict third-party payment apps from accessing the NFC chip, but this could change.
Restrictions on tap-to-pay can limit consumer choice and hinder the move towards a more open banking ecosystem. For instance, Apple's NFC policy does not allow direct integration of tap-to-pay into existing banking apps and other payment apps like PayPal, Venmo, and Cash App.
CFPB Efforts
The spotlight is part of CFPB's broader initiative to monitor the transition to open banking in the U.S., including trends in consumer payments and the introduction of multi-service super apps.
See: ISED Launches Competition Act Review: Consultation on the Future of Competition Policy in Canada
The CFPB is working on a rulemaking required by Section 1033 of the Consumer Financial Protection Act to clarify consumers' personal financial data rights. This could speed up the shift towards open banking in the U.S., emphasizing interoperability across consumer financial products and services.
Striking A Balance and Competitive Landscape
The evolving landscape of mobile payments, driven by the policies and practices of tech giants like Apple and Google, underscores the intricate balance between innovation, consumer choice, and market dominance. As tap-to-pay transactions surge in popularity, the regulations set by these leading mobile operating systems play a pivotal role in shaping the future of retail payments.
Read: Canada’s Competition Problem: 7 Reasons
While these regulations can offer streamlined and secure payment solutions, they also raise concerns about reduced consumer choice and potential stifling of innovation. It's imperative for stakeholders, from policymakers to consumers, to stay informed and engaged in this rapidly changing domain to ensure a fair and competitive mobile payments ecosystem.
FAQ
1. How might the restrictions imposed by Apple on tap-to-pay functionality impact the competitive landscape of mobile payments?
Answer: Apple's restrictions on tap-to-pay functionality, particularly its decision to limit access to NFC technology to only Apple Pay on iOS devices, can create a competitive advantage for Apple Pay in the mobile payments market. Given that Apple's iOS holds a significant market share, this can lead to reduced choices for consumers who use iOS devices. Additionally, third-party payment apps and banks might find it challenging to compete on an even playing field, potentially stifling innovation and competition in the mobile payments sector.
See: Monopoly-Friendly Canada ‘Does Not Treat Competition Policy Seriously’
2. How does the growth of tap-to-pay transactions correlate with the increasing dominance of mobile operating systems like iOS and Android in the U.S.?
Answer: The dominant market shares of iOS and Android, combined with the rapid growth of tap-to-pay transactions, highlight the pivotal role these operating systems play in shaping the retail payments landscape. As more consumers adopt smartphones with these operating systems, the policies and practices set by Apple and Google directly influence how consumers make payments. The increasing shift towards mobile device payments underscores the importance of their policies, especially as they can either promote or hinder the adoption of tap-to-pay solutions, impacting consumer behavior and the overall growth trajectory of the mobile payments industry.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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UK Neobank Zopa Reaches 1M Customers and Raises $93M
Funding | Sep 11, 2023
Image: Unsplash/Colin Watts
Founded in 2004, Zopa has now achieved a milestone of 1 million customers and recently raised a $93 million funding injection.
- While waiting for IPO markets to reopen, Zopa, the neobank has successfully raised £75 million ($93 million) in a tier 2 debt fundraise. This fund will be utilized to strengthen its financial position, explore potential acquisitions, and continue the development of new products.
- This recent funding round was spearheaded by IAG SilverStripe, along with participation from other investors.
- Notably, Zopa has raised a total of £530 million to date.
Performance and Focus
- Zopa has a rich history, being in operation since 2005, and was the first peer-to-peer lender in the UK. However, it transitioned to an online-only bank in 2020, offering a diverse range of products, including personal loans.
- Zopa recently announced that it has reached a milestone of 1 million customers.
See: ClearScore and Zopa ink deal to bring open banking to the credit industry
- Zopa has showcased a positive financial trajectory, already achieving EBITDA positive status. The company anticipates turning profitable for the entire year for the first time. The company has projected an annualized run rate of £250 million ($312 million) for the current year.
- The company's value proposition has become increasingly relevant, especially as the UK grapples with the cost-of-living crisis and rising interest rates. Zopa aims to provide a superior alternative to traditional banks, offering fairly priced credit and savings options.
- Despite its growth and expansion, Zopa has no immediate plans to launch services outside the UK. The CEO, Jaidev Janardana, emphasized the vast opportunities within the UK market and mentioned the introduction of two new products this year. The company aims to launch two additional products the following year.
A Few Competitors for Comparison
Zopa, the pioneering UK neobank, faces competition from several financial institutions and platforms in the UK. Here are their main competitors:
- Funding Circle Ltd.: A prominent peer-to-peer lending platform that focuses on small business loans. It has a significant presence in the UK and has been compared to Zopa in terms of size and reputation. However, it's worth noting that while Zopa offers personal loans, Funding Circle specializes in business loans.
See: French Neobank Startup, Green-Got, Collaborates with 1300 Crowdfunded Climate-Conscious Investors
- RateSetter: Once a major player in the P2P lending space, RateSetter transitioned a few years ago when it was acquired by Metro Bank. The bank integrated RateSetter's lending operations, allowing it to lend its savers' deposits using RateSetter's platform.
- Leap: Leap is another platform that offers small, bank-style personal loans similar to Zopa. With Zopa's transition from P2P lending to banking, Leap remains one of the few P2P lending companies in the UK focusing on ordinary personal loans.
Neobank On The Move
Zopa's impressive journey from its inception as the UK's first peer-to-peer lender to its current status as a leading neobank underscores the transformative power of fintech. With a robust customer base and significant funding, Zopa is poised to redefine digital banking in the UK. As the neobank continues to innovate and expand its offerings, it sets a benchmark for others in the industry, highlighting the potential of digital-first financial solutions in today's interconnected world.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Amber Buker at Totem is Pioneering Digital Banking for Native Americans
Digital Banking | Aug 30, 2023
Source: Totem website
A Personal Quest Turned Visionary Venture: 'Banking By and For Indigenous People'
In the vast landscape of fintech, where innovation is the norm, few stories resonate as deeply as that of Amber Buker and her groundbreaking venture, Totem. As financial institutions and investors scour the market for the next big thing, Totem stands out not just for its technological prowess but for its mission: bridging the financial divide for Native Americans.
Amber Buker, a proud member of the Choctaw Nation, knows firsthand the challenges faced by Native Americans in accessing financial services. From personal hurdles in buying a home to witnessing the broader community's struggles, Amber's journey is one of resilience and determination. Her experiences sowed the seeds for Totem, a neobank with a heart and a purpose.
Video: Redefining the Indigenous Experience through Innovation and Tradition (Lawrence Lewis, OneFeather, Founder)
Founded in 2022, Totem quickly made waves in the fintech world, raising over $2.4 million in venture funding. But for Amber, the numbers were just one side of the story. The real victory lay in launching the Totem app, a beacon of financial empowerment for Native Americans. With features like a debit card, mobile wallet, and direct deposit system, the app is more than just a banking platform; it's a statement that financial inclusivity is a right, not a privilege.
Partnerships with Purpose
Recognizing the power of partnerships, the neobank has forged ties with various tribal nations where tribes benefit from a share of Totem’s revenues, and Totem gains invaluable insights into the unique financial needs of the Native American community.
One of Totem's standout initiatives is its discussions about a payments proof of concept. This would allow ACH payments to be sent directly into Totem accounts, ensuring seamless and fee-free transactions for users. In a world where big banks often overlook the underserved, Totem's commitment to providing FDIC-insured accounts without hidden fees is a breath of fresh air.
FFCON23 Video: Advancing Fintech with Purpose
Amber and her team at Totem are challenging the status quo by addressing issues like the digital divide and the vast distances many Native Americans have to travel to access financial services, Totem is redefining what it means to be a community-based neobank. Their outreach extends beyond reservations, catering to the 70% of Native Americans living off them. In doing so, Totem is sending a clear message: financial empowerment should know no boundaries.
A Call to Financial Institutions and Investors
For financial institutions and investors, the story of Amber Buker and Totem is a clarion call. It's an invitation to look beyond profit margins and recognize the transformative potential of fintechs that prioritize social impact. As the fintech landscape evolves, stories like Totem's will undoubtedly shape its future. Amber Buker's vision, rooted in personal experience and fueled by a passion for change, serves as a beacon for all those looking to make a difference in the world of finance.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Behind the Delays and Push to Modernize Canada’s Banking and Payment System
OpEd Analysis | Aug 23, 2023
Image: Unsplash/Parker Johnson
In a recent op-ed piece from The Globe and Mail, authors David Dodge and Bob Fay shed light on Canada's outdated banking and payments system.
Highlighting the inefficiencies and delays faced by consumers, they emphasize the urgent need for modernization. Drawing comparisons with other nations that have successfully implemented real-time payment systems, the article underscores the potential benefits for both consumers and businesses in Canada. Amidst the backdrop of high transaction fees and a rapidly evolving digital economy, the authors call for a comprehensive overhaul of the country's financial infrastructure.
Current System Limitations
- In Canada, daily transactions such as moving money between accounts or paying bills online can cause extensive delays due to the involvement of multiple parties and platforms.
- Transactions like paying for coffee with a debit or credit card seem quick, but they rely on outdated financial infrastructure. This results in credit-card processing fees that may be passed on to consumers.
Need for Modernization
See: How the Big Five Banks Control Canada’s Payment Systems
- Canada's delay in implementing a modern, national real-time payments system is costly for consumers.
- A modern system would allow immediate exchange, clearing, and settlement of payments. It would also be more secure, available 24/7, and have lower usage costs.
- Such a system would also allow for more information to be shared with the payment, which could drive competition and innovations in the Canadian economy.
Government Has Known for a Over a Decade
- A report from 2011 warned that Canada needed a modern digital payments system to engage in the digital economy of the 21st century. Despite this, Canada is still lagging behind.
- Payments Canada's Real-Time RAIL payments system faced significant delays, risking it being outdated by the time it's implemented.
- Other countries, like Brazil, India, and the US, have already implemented new real-time payments systems.
Canada's Delay is Attributed to a Lack of Political Will, Regulatory Challenges, and Incumbent Interests
- Canadians and small businesses face high fees, some of the highest in the world, every time they make a payment.
- Canada has the opportunity and talent to build a modern payments system. This requires a comprehensive vision, updated policies, and investments in cybersecurity and network resilience.
Takeways from the Article Comments
There is no shortage of comments on the piece. Summarized below are some key takeaways this far, which provides a more diverse range of perspectives:
- The Single Euro Payments Area (SEPA) is indeed a great example of how a unified payment system can facilitate business and reduce costs. It's a model that other regions could potentially adopt.
See: FinTech Executives Disappointed with Budget 2023’s Lack of Open Banking Update, Raising Doubts on Delivery Timeline
- The mention of COBOL applications highlights the challenge of modernizing legacy systems. These older legacy technologies can be a bottleneck for innovation and efficiency.
- The skepticism towards big banks "playing nice" is a concern shared by many. Financial institutions have a vested interest in maintaining their market share and may not be quick to adopt systems that could disrupt their revenue streams.
- The point about businesses benefiting more than consumers from reduced fees is valid. There's no guarantee that businesses will pass on the savings to consumers, as illustrated by the "bag and cup fee" example in Vancouver.
- The issue of hidden fees and lack of transparency is a significant consumer protection concern. It's something that regulatory bodies need to address.
- The delay in processing payments, especially during weekends and holidays, is another area that needs improvement. Real-time processing should be a standard feature of a modern payment system.
- The need for real-time compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations is crucial. Delays in such compliance checks can have serious consequences, as you mentioned with purchasing a house.
- Lastly, consumer awareness and advocacy can play a significant role in pushing for these changes. The more people voice their concerns and demand better services, the more likely institutions are to listen.
Read: Vass Bednar: Canada’s Glaring Banking Protections Gap and Implications for Consumers and Fintechs
The overarching theme is that while technological solutions exist to modernize payment systems and make them more efficient and consumer-friendly, there are various hurdles—be it legacy systems, vested interests, or regulatory challenges—that need to be overcome.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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The Hard Part of Building a Fintech Startup: A Conversation with Cato Pastoll, CEO and Co-Founder of Loop
Podcast | Jul 31, 2023
Image: Bank on loop
"The Hard Part" podcast with host, Evan McCann sits down with Cato Pastoll, the CEO and Co-Founder of Loop, for this discussion.
Loop is a company that offers tailor-made products including CAD/USD corporate cards, interest-free spending, corporate-level purchasing power, no-fee global payments, accessible growth capital, and real US dollar accounts to help businesses grow.
They delve into the journey of Loop, starting from its pivot from Lending Loop to what it is today. They explore why word of mouth has become one of their fastest growth channels and why caring about your customer is the ultimate flywheel for any business, and also discuss the changes needed in our banking regulations to foster a more conducive environment for businesses.
See: Process Flow Comparison: How VISA Works When Swiping a Credit Card at a Merchant’s Shop VS Digital Wallet
So, whether you're an entrepreneur, a business enthusiast, or someone interested in the dynamics of the financial industry, this episode is packed with insights that you wouldn't want to miss. Tune in and let's dive into the hard part of building and growing a business with Cato Pastoll.
Loop's new website: bankonloop.com
Connect with Cato Pastoll: Linkedin
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Future of Neobanking: Exploring the Landscape of AI-Powered Digital Banks
Digital Banking | Jul 16, 2023
What is an AI-driven Neobank?
An AI-powered Neobank is a licensed digital-only bank that leverages artificial intelligence to deliver customer-centric, operationally efficient, and profitable services at scale. These banks differentiate themselves by embedding data and AI capabilities extensively across all aspects of their operations. This allows them to deepen customer relationships, improve financial performance, and deliver hyper-personalized services. They operate with lower cost structures and disruptive pricing practices compared to traditional banks.
See: How AI Has Revolutionized The Canadian Banking Industry
- A couple of examples of AI-powered Neobanks that are transforming customer experiences include:
- Revolut has rapidly launched and reworked new products and propositions, adapting to evolving customer needs. It has launched an average of a new product every quarter, driven by its strategy of experimenting with new products to address evolving market trends.
- Klarna uses a machine learning-based recommendation system to determine consumer purchase patterns and offer appropriate shopping recommendations and financing offers.
- In Canada, we can expect digital banks and fintech companies to make waves by further integrating AI across the spectrum of business operations:
- Neo Financial: This Canada-based digital bank recently raised $185 million CAD in a funding round, signaling confidence in the neobank sector. While it's not explicitly stated that they use AI, their digital-first approach and innovative services suggest they likely leverage AI technologies.
- Wealthsimple: Although primarily known as a robo-advisor and investment platform, Wealthsimple has expanded its services to include savings accounts and peer-to-peer money transfers, tax preparation software, and more. The company uses AI to manage investment portfolios, and it's possible that they use similar technologies in their other financial services.
Please note that while these companies are innovating in the financial sector, the specific use of AI in their banking services isn't explicitly confirmed in the search results. For detailed information, it would be best to visit the companies' websites or contact them directly.
Key Characteristics and Capabilities of Neobanks
AI-powered Neobanks can have several advantages over traditional banks. They operate with lower cost structures and offer more transparent pricing terms with fewer hidden fees. They leverage AI to deliver hyper-personalized services, maximize customer lifetime value, dramatically lower the cost to serve through automation, and adopt superior data-driven risk management practices.
See: French Neobank Startup, Green-Got, Collaborates with 1300 Crowdfunded Climate-Conscious Investors
They also have the ability to launch products at high velocity, focus on customer engagement, hyper-personalize experiences, adopt conversational design, integrate open-banking features seamlessly, leverage partner ecosystems to scale, and use customer-lifetime-value (LTV) to guide actions.
- AI is the cornerstone of successful neobanks, enabling them to deepen customer relationships, improve financial performance, and deliver hyper-personalized services. By embedding AI capabilities across operations, neobanks can maximize customer lifetime value, lower costs through automation, and adopt superior data-driven risk management practices.
- Winning neobanks distinguish themselves by rapidly launching and reworking new products and propositions, adapting to evolving customer needs. They prioritize customer engagement, offering services that go beyond pure-play financial services to deliver new forms of utility and entertainment.
- Successful neobanks leverage machine learning to personalize customer experiences, matching customers' present context and historical behavior. They are also adopting conversational design, replacing traditional forms and questionnaires with chatbots, voice assistants, and live video consultations for superior engagement.
- Neobanks gain a competitive edge by building an open platform from the outset, seamlessly tapping into the broader open-banking ecosystem. They also leverage partner ecosystems to scale, embedding their services within these ecosystems for easy, low-friction access to banking services. Open banking, facilitated by APIs, allows neobanks to integrate with other financial services and third-party providers, creating a seamless and holistic financial ecosystem for customers. This can include everything from linking with fintech apps for budgeting and investing, to integrating with payment services for easy money transfers. As customers demand more interconnected services, the ability to integrate effectively will be a key factor for success.
- Successful neobanks use customer lifetime value (LTV) as a key performance metric, alongside traditional balance sheet metrics. This enables them to take more granular and tailored actions quickly, boosting customer value and driving strategic and operational decisions.
Challenges and Opportunities Ahead
Like all fintechs, Neobanks, or digital-only banks, have been disrupting the traditional banking industry with their innovative, customer-centric approach. However, they face several obstacles and opportunities that will shape their future in the financial services industry.
Security and Regulation
As digital platforms, neobanks are attractive targets for cybercriminals. Ensuring robust security measures to protect customer data and transactions is crucial. They need to invest in advanced security technologies and protocols to prevent data breaches and fraud, which can be a significant challenge given the evolving nature of cyber threats. Neobanks often face complex and varying regulatory environments across different regions. Compliance with these regulations, including those related to data security and privacy, can be costly and time-consuming.
Profitability, Trust, and Adoption
Many neobanks are still striving to achieve profitability. They often offer free or low-cost services to attract customers, which can make revenue generation challenging. Despite their innovative offerings, they still need to earn the trust of potential customers, especially those who are accustomed to traditional banking. This trust extends to the security of their platform and the protection of customer data.
See: When A Neobank Goes Bankrupt What Happens to the Customers?
As more people become comfortable with digital banking, the adoption of neobanks is expected to increase. This is particularly true among younger generations who are digital natives and prefer online services. Many neobanks are looking to expand their services globally. This includes entering emerging markets where a large portion of the population is unbanked or underbanked.
Financial Inclusion and Sustainable Banking
As digital-only banks, neobanks already have a lower carbon footprint than traditional banks. They can further this by investing in environmentally friendly practices such as renewable energy for their data centers, promoting paperless banking, and offering products that support environmentally friendly practices, such as green loans or investments in sustainable businesses. Socially Responsible Products that support social welfare, such as microloans or greenloans for low-income individuals or businesses, or investment options that prioritize companies with strong social responsibility records. Operators must commit to ethical practices such as fair pricing, transparency in their terms and conditions, and avoiding investments in industries that are harmful to society or the environment.
Future of Neobanking
In conclusion, the future of neobanking is bright, promising a revolution in the financial services industry. As they overcome obstacles such as regulatory challenges, security concerns, and the quest for profitability, neobanks are poised to redefine banking with their customer-centric, digital-first approach. Innovations in AI, machine learning, open banking, and blockchain are set to drive this transformation, offering personalized, integrated, and efficient financial services.
Furthermore, by prioritizing financial inclusion and ethical, sustainable banking practices, neobanks have the potential to not only disrupt the banking industry but also contribute to a more inclusive and sustainable financial ecosystem. As we look ahead, it's clear that neobanks will play a pivotal role in shaping the future of banking.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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NatWest Group’s Vision for the Future of Open Banking and 3 Potential Ways Forward
Open Banking Report | Jul 4, 2023
Image: NatWest commissioned report
NatWest report on open banking's untapped potential and pathways forward
- Despite Open Banking's launch in 2018 and its use by over 7 million businesses and consumers, it has only reached about 10% of consumers and SMEs. Traditional payment methods still significantly overshadow Open Banking payments. The report by Oxera, commissioned by NatWest Group, highlights the economic obstacles that are hindering the broader adoption of Open Banking and the development of innovative use cases beyond the regulatory mandate.
See: Payments Canada Delays Launch of Real-Time Rails Again (without a timeline)
The report identifies several key obstacles that are currently hindering the wider adoption of Open Banking
- Lack of Commercial Incentives: There is a lack of commercial incentives for banks and other financial institutions to develop or enhance APIs (Application Programming Interfaces) that facilitate Open Banking. This lack of incentive is slowing down the development and implementation of Open Banking solutions.
- Misalignment Among Banks: There is a lack of alignment among ASPSPs (Account Servicing Payment Service Providers – i.e., banks) on the benefits and potential of Open Banking. This misalignment can lead to inconsistent approaches and strategies, hindering the overall progress of Open Banking adoption.
- Managing Trade-offs: There are significant challenges around managing trade-offs within the Open Banking ecosystem, particularly in relation to security and convenience. For example, while Open Banking can offer increased convenience through seamless integration of financial services, it also raises concerns about data security and privacy. Balancing these aspects is a major challenge.
- Limited Scope of Use Cases: The current regulatory mandate for Open Banking may limit the scope of potential use cases. This limitation could be preventing the development of innovative applications that could drive wider adoption of Open Banking.
- Traditional Payment Dominance: Open Banking payments are currently dwarfed by more traditional payment options like cards or direct debits. This dominance of traditional payment methods may be slowing the adoption of Open Banking payment solutions.
See: Visa Survey: Insights into Consumer Preferences for Open Banking
Three possible routes to move forward
- Mandate Banks to Offer a Wider Range of Use Cases: This solution involves expanding the scope of Open Banking and requiring banks to provide the necessary data via APIs for free. This could stimulate the development of new use cases and applications, thereby driving wider adoption of Open Banking.
- Commercialized APIs: This approach encourages banks to expand Open Banking use cases through Premium APIs. By allowing banks to commercialize their APIs, they may have more incentive to develop and enhance their Open Banking solutions, which could lead to increased adoption.
- A Multi-Party System: The third solution proposed by the report is to enable multi-party systems to emerge that have a commercial incentive to grow the Open Banking ecosystem. This involves designing new, flexible frameworks for industry collaboration. By fostering a cooperative environment where various parties have a stake in the success of Open Banking, this could drive innovation and adoption.
The report notes that different routes may be optimal for different Open Banking use cases, and some may benefit from hybrid approaches. For example, mandating the development of an API, but leaving its commercialization to the banks themselves, or to a multi-party system.
Claire Melling, Head of Bank of APIs at NatWest Group:
“This report makes it clear that banks, fintechs and regulators need to work together to design new, flexible frameworks and commercial incentives that will support a far wider range of Open Banking use cases. By acting on the recommendations in this report, we can enable Open Banking to reach its full potential and, ultimately, deliver new and enhanced propositions that will improve customer choice and experience.”
Download the 44 page PDF report --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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