Accenture Banking Blog

Open Banking is making a significant impact upon the banking industry in Europe. The banking market structure keeps changing and shifts in revenue continue, with new players growing faster than incumbent banks. PSD2 encourages new entrants in Europe. In the UK, for example, 50 new players received licenses by becoming Account Information Service Providers (AISPs) or Payment Information Service Providers (PISPs).

New players are continuing to grow both in numbers and in revenues, despite some smaller players starting to exit the market due to revoked and/or retired licenses, consolidation, outright failure or the impact of regulatory changes. The newcomers have increased their share of revenue over the past year (by one percent in Europe and 1.3 percent in the UK) as incumbents’ share has declined and is now capturing a third of banking’s total growth.

New players are scaling up through geographic expansion, broader product offerings and new investments (for example, N26 and Revolut are expanding outside Europe); in parallel, big tech firms are entering financial services through the launch of their own initiatives in payments and through partnerships to offer other products—all driven by Open Banking.

Since the first CMA Release in January 2018, the Open Banking offering in the UK has grown significantly, with 25 account providers and 64 TPPs registered on the Open Banking Directory, including market giants like American Express, JP Morgan Chase and Citibank registered as TPPs. The journey started slowly with banks introducing account information and payments initiation journeys in their applications, then followed by accounts aggregation apps like Barclays BMB app upgrade and the Connected Money app introduced by HSBC. Since then, banks and other companies have focused on the creation of the new uses cases and payments initiation journeys like the recently introduced Adyen/KLM, where UK customers can pay for the tickets using Open Banking functionalities.

Given this activity, we thought it useful to look at the business models associated with the emergence of Open Banking.

We analyzed more than 350 platforms that have emerged over the last few years and found:

  • European institutions represent 76 percent of the platforms
  • Of more than 150 financial services platforms analyzed, one-third are what we would term “marketplace multi-sided”, one-third are “banking-as-a-service” (BaaS) and one-third are “banking-as-a-platform” (BaaP).
  • Incumbents make up 38 percent of those platforms, with a preference for banking-as-a-platform for retail clients.

How should we read these figures? A few observations:

  • Europe is the battlefield from the West (GAFAs) and the East (Chinese platforms, in particular). Will this foster innovation or will it prevent local players from reaching the scale needed to compete?
  • There are differences between strategies adopted by incumbents and those chosen by new players. Most of the incumbents’ initiatives leverage the strength of their client base but do not leverage the network effect, as they are, by definition, private. The question becomes whether this is the appropriate model, or if they should try to replicate (or buy) competitors’ models. 
  • At this stage, models differ widely according to the bank’s strategic posture (for example, whether it competes in Tier1 or Tier2), its competitive environment, and even by type of business or product. This raises the question of whether there should be coherence between retail, corporate and other types of business.
  • A few banks are at the forefront of Open Banking, often testing all models from bank-as-a-platform to bank-as-a-service and marketplace multi-sided, while most other banks position themselves as early adopters, focusing on one or two models.  Are both strategies valid?
  • Finally, the bulk of revenues still comes from financial products, even in the marketplace model. Does this mean that additional services should be considered as “nice to have”, or will they really be the future of banking?

In our next blog, we will look in more detail at selected approaches taken by European banks.