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The investments and returns of open banking

New research published today from open banking platform and cluster member Tink reveals that financial institutions are ramping up their investments in open banking, as the industry mindset moves from compliance to value creation.

According to the data, median open banking investment budgets for European financial institutions are typically between €50-€100 million, with spend exceeding €100 million for nearly half (45%) of financial institutions surveyed. Median open banking spending lies between €50-€100 million.

Read the full report here and find out more about:

  • How much financial institutions are investing in their open banking initiatives
  • How they’re looking to measure success
  • When they expect to see a return on these investments

Figure one: Spending on open banking objectives by country

Two-thirds of financial institutions (63%) say open banking budgets have grown since last year, with annual spending rising by between 20%-29%. Just 10% of institutions have slowed their investments in this area.

The benefits and barriers to open banking investment

The opportunity to improve customer experience was the biggest driver for these open banking investments — cited by 44% of the financial institutions surveyed. This was followed by IT modernisation (39%) and process optimisation (34%).

Yet barriers persist — with legacy IT seen as the top inhibitor of investment by one in three (33%) respondents. Meanwhile, 32% cited more important business priorities as a blocker and 31% believed regulatory restrictions stifled spending.

Payback time: reaping the rewards of open banking

Nonetheless, financial institutions are optimistic about open banking ROI, with 50% projecting a payback period of less than four years and more than two-thirds (69%) expecting the benefits to outweigh the costs in less than five years. Just 1 % of those surveyed felt there was no payback at all.

Financial institutions clearly recognise the huge commercial opportunity that open banking offers in the near term. Revenue growth from new customers emerged as the most important success metric for open banking investments amongst 44% of respondents. This was followed by revenue growth from new products and services (39%) and the monetisation of data by offering developer services or APIs (37%).

- The size of these investments prove that open banking has moved firmly from compliance challenge to commercial opportunity in the minds of financial institutions. Not only has it become integral to the digital transformation of financial institutions and been embedded across all parts of the organisation — it has also emerged as a key driver of revenue growth and an important differentiator when it comes to customer engagement and experience, says Daniel Kjellén, co-founder and CEO, Tink.

- Today, as we wrestle with the new social and economic realities of life with Covid-19, it is vital that financial institutions continue to prioritise the development of innovative open banking use cases that support their customers in new ways and provide financial services seamlessly over digital channels, says Kjellén.