EU vs UK: How open banking adoption differs on the Continent
Three years after PSD2 came into force, we take a look at how open banking differs in the UK to the rest of Europe.
Today marks the third anniversary of the implementation of the EU’s second Payment Services Directive (PSD2).
The first three years of open banking as we know it has not always been plain sailing, it’s taken a while for consumers to trust the financial innovation and there still remains a lot of misinformation about how banks use our financial data.
Open banking’s main aim is to make the financial industry more transparent and fair, with most fintechs utilising the technology to their advantage and incumbents following suit.
Despite the growing popularity, open banking has two million active users as of September 2020, there seems to be a big difference between how we use open banking here in the UK and how it’s used on the Continent.
If you needed any indication of the most apparent difference between Europe and the UK when it comes to open banking, it would be that many European countries have only just adopted open banking, most through fintech product launches.
Morton only stepped into his role as UK country manager recently, with TrueLayer announcing the new appointment earlier this week, but has since seen markets such as German, Spain and Lithuania come on leaps and bounds.
The UK manager told AltFi: “Because we take purely an API driven approach to the markets that we go into, we feel that we're well placed to understand the maturity of each of the countries within European market, and how that relates to open banking.”
“In the UK, we are seeing great conversion rates and in mainland Europe, the conversion rates are catching up. Obviously, unlike the US, you can’t look at Europe as one single market, from an open banking perspective, you need to look at it as individual countries,” he added.
Another company that has been at the heart of open banking rollout across both the UK and Europe is Swedish fintech, Tink.
Jan Van Vonno, research director at Tink, told AltFi: “The UK has been trailblazing open banking since the 2017 CMA mandate to open up the market and drive greater competitiveness in financial services. This has given open banking a tailwind in the UK, which means that, as a market, it’s charging years ahead of the rest of Europe.”
According to research from the cloud-based fintech, nearly three quarters (73 per cent) of financial institutions in the UK are increasing the amount spent on open banking, which is a fair few more than in Europe where just 61 per cent of firms are splashing the cash on open banking.
The UK is also strides ahead when it comes to realising open banking’s potential.
Nearly half (47 per cent) of firms in the UK are spending between €1m and €49.9m on open banking and a third of firms spend over €100m.
Van Vonno told AltFi: “With COVID accelerating the shift to digital, it’s encouraging to see that UK financial institutions are ramping up their investments in open banking—moving away from a purely PSD2 compliance mindset and more towards value creation.”
The researcher went onto add that the sheer amount that these companies are spending on improving their open banking capabilities shows how important the innovation has become here in the UK.
Van Vonno added: “The magnitude of these investments shows that open banking has become central to digital transformation programs in the UK.”
Open to open banking
Since then, the financial API provider has made over one billion API calls and makes roughly 26m API calls on a weekly basis.
As far as bringing open banking to Europe goes, YTS has 95 per cent API coverage in the UK, 90 per cent in the Netherlands and recently deepened its coverage in Italy, France and Spain, where it now has 80 per cent coverage across the three nations.
Leon Muis, chief business officer of YTS, told AltFi: "Open Banking has made great strides since then and is delivering benefits to consumers and businesses right across the continent, but as an Open Banking provider that operates at a pan-European level, it is clear to us that the pace of change and the extent to which Open Banking has been adopted in each nation is vastly different."
"From the very beginning, the UK has been at the forefront of Open Banking and the market remains ahead of other European nations to this day, with good availability and performance of APIs across the market."
Muis went onto add that he thinks the UK is so far ahead of its European neighbours because the nine largest banks in the UK already had APIs in place in January 2018, while banks on the Continent didn't have them in place until September 2019, largely down to the different regulation in Europe.
"Open Banking is built on the foundation of data security, putting control of personal data back into the hands of end-users, with bank-level security measures and close regulatory oversight. This must be emphasised if we are to see complete Open Banking adoption in the years ahead," the CBO of YTS added.
There are many factors as to why open banking just hasn't made the same dent in Europe as it has here, no less because the UK was more open to accepting open banking right out the gate and had a more forgiving regulatory landscape.
Ultimately, it's safe to say that open banking is here to stay and now the main objective is to, not only innovate on home soil but to also expand and deepen open banking adoption across Europe.