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  5. Open Banking and Embedded Finance Get Serious at Money 20/20 Europe

Open Banking and Embedded Finance Get Serious at Money 20/20 Europe

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16 June 2023
Kieran Hines

Money 20/20 is always an excellent temperature check on some of the key issues in the industry. With the dust now settled on this year’s event, it makes sense to step back and reflect on what we can learn about the direction of travel for open banking and embedded finance.

I’m far from the only person sharing my take on the event of course, but one of the great things about Money 20/20 is that the sheer breadth of the topics and interests reflected on the show floor means that everyone comes away with a different set of impressions and learnings.

Much as I did at last year’s conference, I spent most of my time speaking to those involved with the new ecosystems building around the traditional banking value chain: open banking, open finance, embedded finance, and BaaS. Based on these conversations, there are three themes to highlight.

Lending and PSD3 are the hot themes in open banking

Open banking and embedded finance were very much front and centre in the conference agenda, and on the exhibition floor, and with good reason. This space has begun to mature quite quickly and is high on the agenda for a growing number of financial institutions. It’s also now very much a global initiative, and I met with a number of people active in open banking from other regions that had come to learn and share their experiences.

Digging into some of the sub-themes here, where last year was very much focused on payments the conversation around use cases has become a little more nuanced. Lending in particular, and using open banking to support everything from onboarding to risk profiling, has become a very hot topic.

One of the standout sessions involved Eric Ducoulombier from the European Commission, who outlined some of the key themes that are likely to be addressed in the forthcoming PSD3. While the details of this are yet to be released (the current target date for a preliminary view is the end of June), the intention is very much to continue to improve on the frameworks created in response to PSD2, with the aim of supporting further adoption. Interestingly, many of the points raised align with the principles behind the Sepa Payment Accounts Access (SPAA) scheme. Central to this is the notion of creating greater incentives for banks to become more active participants in the ecosystem (in other words, to ensure there is a greater commercial benefit).

Embedded finance is about co-creation, not solely distribution

The change in the tone and nature of the conversation around embedded finance, BaaS and similar partnership models was also striking. A year ago, most of the activity in the industry was quite tactical and relatively exploratory in nature. This has given way to a something of a surge in activity. On the stage, Kelvin Tan outlined the success that Standard Charted is having with its Audax initiative, while Rabobank announced a new partnership with Banxware at the event, through which it intends to target the small business credit market.

Aside from the sessions and announcements, several of my 1-1 meetings with financial institutions touched on the successful models and cross-ecosystem partnerships out there in the market today. This is not about embedded finance as a simple distribution play either; the discussion is very much grounded in the need to create unique value through co-creation with carefully selected partners. This will be a very interesting space to watch in the coming year.

Open Banking vendors must continue to specialise

The sharpening of focus on open banking and embedded finance will mean that the opportunities for vendors offering infrastructure or enablement services will continue to grow. As I wrote in my blog post after Money 20/20 last year, this is a very good place in which to operate.

However, with growing maturity and activity will come the need for greater differentiation through specialisation. The players in this space are already beginning to dive more deeply into their respective niches, and this trend will continue as competitive pressures will start to squeeze out those players without the ability to respond. In the open banking context, value added services around payments was arguably the standout theme. This time around, while payments remains central to the discussion around open banking, lending and delivering new value through specialisms in adjacent areas (such as identity) will become increasingly in demand.

There's plenty more to unpack on each of these themes but one thing is for certain: 2023 is shaping up to be an extremely important year in the development of open banking, embedded finance and BaaS. The leaders are starting to emerge, and the rest of the market must consider how to respond.