We have officially reached Q2 of the year and as we move away from what has been a particularly bleak winter in Fintech, Ozone API’s co-founder & Chief Commercial Officer Huw Davies reflects on the 2023 predictions he made at the start of the year.
1. Banks will continue to open up
This is certainly true, on a couple of fronts. The inevitable momentum of open banking is continuing with initiatives gathering pace in many new markets.
As we reach the end of Q1 we are about to see open banking go live in Saudi Arabia, a market with a very clear vision for how open finance can help drive transformation. We’ve also recently seen the publication of a regulatory framework for Nigeria and in Latin America there is a huge amount of activity as markets like Colombia, Chile and Mexico work towards delivery.
As the year progresses it will be interesting to see the momentum build in North America as Canada defines it’s implementation approach and the US moves through the stages of regulatory consultation.
But beyond just more banks and more markets, we’re seeing banks in established markets open up more. It’s still banks like NatWest who are leading the way with their Bank of APIs, continuing to open up ever more value adding APIs that will both fuel more innovation and create new revenue streams. Whether that is APIs like variable recurring payments or identity based APIs.
So banks are definitely continuing to open up.
2. Embedded Finance, you stay there, I’ll come to you.
Embedded finance is a buzz word that you hear constantly. And it’s happening, but it’s not yet the domain of the big banks. For now it tends to be the ‘banking as a service’ platforms who are enabling things like account opening to be more seamlessly embedded within fintech journeys.
I still contend that this is only a matter of time and it won’t take long for banks to deliver standards based APIs that allow things like account opening and new credit lines to be embedded within third party journeys.
Firstly as it makes a huge amount of sense, allowing a route to get to more customers at a lower cost. Secondly, it’s what customers will be demanding; to build financial experiences into the channels they’re using rather than having to break out and go to a bank app.
We’re talking to more and more banks who get this and we’re excited to be delivering service based APIs that enable it.
3. Fraud will not go away
It won’t, and unfortunately, it hasn’t. Account to account payment fraud continues to be a challenge for the industry. Open banking payment initiation and confirmation of payee are both strong measures to reduce the risk of fraud, but as an industry there is still more to do.
Open banking creates a much more secure environment for account to account payments with measures to establish trust and security between all parties.
Unfortunately, fraudsters always target the weakest link and that is definitely the case with account to account payment fraud. Customers and businesses continue to be targeted with simple scams playing on basic human instincts of fear, greed or creating confusion to encourage people to make payments to fraudulent accounts.
It’s a challenge that goes beyond the payments industry with a huge amount of responsibility sitting with the channels that allow fraudsters to pump huge volumes of fraudulent texts, emails and messages to those end customers.
Open banking and confirmation of payee will help. But the challenge remains significant.
4. Banks will monetize premium APIs
This is certainly not happening at scale yet, but it is starting to happen.
Variable recurring payments is the first API that is being monetized as the third party platforms negotiate terms to build on the VRP APIs of banks like NatWest. It is also likely to be the first that really scales with a number of industry attempts to create a multilateral framework agreement or even a scheme (as is being attempted at a European wide level) to set rules and pricing that means all participants can play more easily. But that will take some time.
For now we’ll continue to see proof points being established between limited partners for limited use cases. But it is happening and it will scale.
5. Open Finance will continue to take shape
In the UK, we’ve been talking about open finance for a number of years now. It is yet to become a reality (unfortunately) although there is a clear intent from the Joint Regulatory Oversight Committee to try and make it happen. Hopefully bold leadership will make it a reality.
But, whilst the UK convenes committees, Brazil is making it real with open insurance mid-implementation following the initial open banking wave. With more sectors to come, Brazil is definitely showing the way when it comes to a broader open finance agenda.
6. Open banking will evolve new capabilities
It is happening. Watch this space. As we see the first phase of open banking being implemented in Saudi Arabia, we will see these two new design patterns released into the wild.
We’ve been really excited to implement this for banks we’re working with and we’ll see event notifications become a reality, paving the way for more effective open banking. Alongside that, “service requests” will fire the starting gun on standards based embedded finance (as discussed in the second observation above).
7. The evolution of payments will accelerate
It will, although big things take a while to gain momentum. That’s just physics!
In the UK we see open banking payments uptake continue to accelerate with over 8m payments a month. Still a drop in the ocean but accelerating quickly. Variable recurring payments are now happening for account to account sweeping with 6 of the CMA 9, so the foundations are there for a much more scalable and commercial payments ecosystem.
We only need to look at other markets that have really embraced the power of account to account payments to see what’s to come. In India, UPI dramatically changed the landscape with billions of transactions happening monthly. Similarly Brazil has also seen enormous growth of PIX and the trajectory is only heading in one direction.