Improved infrastructures and awareness needed to embrace Open Banking payments in EU

By Gaia Lamperti

Financial institutions across Europe are betting big on open banking payments, according to new research from European open banking platform Tink, citing tangible benefits for merchants and their end-users.

When asked to reflect on the most important benefits for merchants, three-quarters of financial executives (74%) ranked increased payment security and fraud mitigation as key benefits of open banking payments. While the ability to deliver instant transfers (70%) and the potential to reduce costs for merchants (67%) are also seen as important advantages.

This enthusiasm builds on positive sentiment from 2021 — when Tink’s research showed that 72% of executives considered payments as the most important area of open banking to invest in.

This year, the survey of 380 financial services executives across 12 European markets also reveals the specific use cases executives believe are best suited to open banking payment initiation services (PIS), focusing on processes that are often inconvenient, frustrating, and time-consuming for the user.

Ranking of use cases PIS are best suited to:

1. Peer-to-peer (P2P) transfers
2. Invoice/bill payments
3. Fund transfers for investments and savings
4. Online commerce payments

Barriers to adoption

However, the research highlights that there is still work to be done to ensure open banking payments realise their true potential. A lack of consumer awareness is cited as a major barrier, with 75% of respondents believing consumer awareness is critical for the adoption of open banking payments.

Another concern for executives is the current limited adoption of instant payment rails across Europe to enable real-time payments, which topped the poll of major barriers to the take-up of PIS.

Tom Pope, Head of Payments and Platforms at Tink, said: “Open banking has the potential to transform the payments industry. In certain markets, we are already reaching a tipping point of user adoption, where financial institutions are embracing the opportunity and investing in a range of use cases. As a result, PIS volumes are growing rapidly.

“But there is still some way to go to remove barriers to mass-market adoption. That’s why we welcome the European Commission’s proposal to mandate the adoption of instant payment rails and call on them to ensure that access to these rails is free for consumers. This move will ensure we have the infrastructure in place to continue to innovate whilst encouraging consumer uptake of open banking payments.

“Our research also shows the need for a solid foundation of consumer trust and awareness to allow PIS to reach its full potential. As an industry, we need to work together to create a common language around PIS so consumers can easily understand the service and its benefits.”

The need for partnerships

Unlocking the potential of open banking payments will require increased focus and investment from financial institutions over the coming months and years.

Fintechs have a vital role to play here — helping financial institutions enhance user experience, pioneer new use cases, and establish business models that allow all stakeholders to generate value from PIS.

 “Forging strategic partnerships with fintechs can help financial institutions innovate around APIs to remove friction and improve the end-user experience. This is essential to driving mass-market consumer adoption of open banking payments over the next few years,” added Pope.