A New Year, A New Leap Forward For Open Banking FinTechs

Global investment in FinTech has grown more than tenfold over the past few years. The major trend that helped to drive this growth was the emergence of Open Banking as a transformative tool for the financial sector.

Open Banking is a banking practice that provides third-party financial service providers open access to consumer banking, transactions, and other financial data. The coming year will see Open Banking become a strategic enabler for financial institutions and the communities they serve.

Traditionally, a financial institution's connection with its consumers was one-to-one, with clear rules: service providers controlled the data and owned the infrastructure, and clients had limited options.

Institutional investors are already betting on a future in which data democratization gives the possibility to alter this, as seen by the favorable shift in attitude towards Open Banking and the partnerships that are being made to get access to Open Banking technology.

Last year, when the credit card giant Visa proposed to invest in Plaid, there had been a lot of speculation around Plaid’s evaluation.

Plaid's success last year is unsurprising, given the FinTech boom of 2020, when customers flocked to free stock trading applications and neobanks. Plaid's product stands between customers and FinTech businesses, so if those parties were completing more transactions, Plaid's API company would likely see an increase in demand for its own services.

After this deal collapsed, Plaid suddenly found itself re-strategising for the future on their own, but investors were clearly still interested. It said that demand for its products continued to rise and it added more new customers in spite of the Visa deal not panning out.

Shortly after, Plaid raised US $425 million in a Series D round and the company has an estimated valuation of US$ 13.5 billion as of April 2021

Open Banking is a relatively new phenomenon in Europe, just over 10 year. In 2007 the European Commission published its recommendations on the appropriate uses of personal data. A number of countries already implemented some form of Open Banking, and now they are attracting big rounds of investment.

In 2016, Open Banking witnessed a surge in popularity when a few innovative financial software products became commercially viable. Now, over 1 million people across Europe use Open Banking services and the average European spends over 30 minutes each week on Open Banking activities. In addition, more than two million small businesses across the 28 EU countries are now using Open Banking to connect with SMEs and other non-financial companies.

Tink, a pioneering Open Banking platform from Sweden just secured €85 million of additional funding, led by Eurazeo Growth. This brings the total investment in Tink during 2020 to €175 million (€90 million were raised in January of this year).

Global payments and BNPL FinTech Klarna launched its Open Banking solution in 2019, their growth trajectory was amazing. In March this year, they announced that its Open Banking solution will be available in eight additional European countries: Portugal, Denmark, Luxembourg, Ireland, Croatia, Estonia, Lithuania, and Latvia. Klarna has the largest Open Banking network in Europe, covering a total of 24 countries and  up to 99 % and a minimum of 90 %t bank coverage across markets, 

What’s next for Open Banking?

On a worldwide scale, such fundamental change will take years to completely mature, but there is little question how investment in Open Banking FinTech is speeding things up - much more so in light of the coronavirus epidemic. Open Banking is on track to be really transformational for banks, their FinTech partners, and billions of financial consumers around the world, thanks to sophisticated banking technology.