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Open banking continues to evolve — what’s next?

Sifted | Steph Bailey | Nov 3, 2021

Focus on customers first - Open banking continues to evolve — what’s next? Opening Up Financial Services

Investors are still betting big on open banking: in the past three months, TrueLayer announced a $130m funding round led by Tiger Global, Visa bought rival Tink for $2bn, Yapily announced its $51m Series B raise and Mastercard doubled down by acquiring Aiia — a Danish startup that will allow Mastercard to do credit scoring.

So why are investors flashing the cash when open banking is still in its nascency? Back in April, Yapily founder Stefano Vaccino told Sifted that VCs are less concerned with monetisation and more with the market’s raw opportunity.

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“Investors aren’t looking at revenue multipliers, but the size of the market… This is a space that for the next 10 to 15 years will continue to grow, and there’s an opportunity to build a company that is $100bn,” Vaccino said.

One of the opportunities in open banking is the payments market, where fintechs are using the vast network of bank connectivity to fuel a new era of account to account (A2A) transactions. That’s allowing consumers to pay directly into merchants’ bank accounts rather than using a card.

Early open banking players like Tink, Plaid, Bankin’ and TrueLayer — who all began by offering data connectivity — have now started branching into the payments space. They’ve recently been joined by new players including Vyne, BOPP, Trilo and Banked.

“There’s an amazing thing in fintech generally called coopetition, where there’s an acceptance that you can’t be good at everything,” he says. “Most fintechs and people in the industry now consider the competition as part of what is needed to deliver the solutions you need.”

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A key piece of European payments legislation called PSD2 came into effect in 2018 and boosted the open banking sector by forcing UK banks to open up their data (albeit to varying quality levels). McDougall now says similar legislation is needed in other countries.

“What we’re going to need over the years ahead is the availability of equivalent regulatory frameworks in these other jurisdictions,” he says. “So that European open banking works seamlessly with North American open banking etc.”

The UK is now nearing four million open banking customers, which is behind predictions, but with the right regulation and products, 40m people could have accessed open banking services by 2025. However, surveys suggest some customers still have concerns over protecting their data.

But Greenwood says there are 58 countries currently rolling out their own version of open banking. While the UK was among the first to adopt it, he says other countries can learn from it.

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