European financial institutions prioritising investment in compliance-related use cases

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New data published today from open banking platform Tink reveals that European financial institutions are continuing to embrace open banking led innovation as the Covid 19 pandemic accelerates the digitalisation of financial services.

According to previous research from Tink, European financial institutions are spending an average of €50-€100 million on open banking. Today’s new data breaks down this spend, revealing that financial institutions are prioritising investment in use cases that deliver immediate value​ to their business by improving customer acquisition and engagement, as well as employee productivity.

71% of financial executives surveyed across Europe are putting compliance related use cases at the top of their investment list. Of these, 41% are prioritising digital identity services, 41% KYC process automation and 37% transaction monitoring.

Meanwhile, some financial institutions are also looking past compliance and exploring improvements to the customer experience, with 36% investing in financial management services, 35% in onboarding process automation and 33% in multi-banking applications.

 

Tink’s data also reveals that the motivation to invest in one use case over another depends largely on a company’s exposure to regulations but also the nature of the business.

The size and maturity of a business is an important determinant of where money is invested, with larger institutions such as traditional retail banks (57%) and wealth management companies (53%) ranking digital identity services as the number one area of investment.

Meanwhile, challenger banks and PSPs are the only two segments where a non-compliance related use case is ranked as the top investment area — with challenger banks prioritising onboarding automation (44%) and PSPs investing in multi-banking services (47%). This should come as no surprise considering that one of the main differences between challenger and banks lies in the onboarding experience.

Smaller businesses (with 100-499 employees) are focussing on streamlining the customer experience, with 54% investing in KYC process automation (compared to just 29% of institutions with 1,000+ employees). On the other hand, large organisations (with over 1,000 employees) are focusing primarily on digital identity services (42%). This is likely due to the SCA requirements articulated in PSD2.

Daniel Kjellén, co-founder and CEO, Tink, said: “ With compliance seen as mission critical to keeping a business running, it is understandable that  many financial institutions continue to focus in this area. However, with Coronavirus accelerating the shift towards digital channels, financial institutions have a unique opportunity to fuel acquisition and loyalty by further enhancing the customer experience. By looking beyond compliance and investing in open banking use cases that support customer experience, they can ensure they stay ahead of their main competitors, such as challengers and PSPs.

“Executives should also evaluate where to invest next by assessing the complexity, impact and urgency for open banking in every industry segment. It’s no secret: where challengers are taking market share from the existing business will nearly always be the most immediate area to invest in.”

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