The "Open" paradigm and the evolution of financial ecosystems

The 'Open' paradigm and the evolution of financial ecosystems
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01 Feb 22

Open Finance is ready to start a period of consolidation and growth: estimates foresee its evolution in one of the dominant segments of the financial world with a value in 2026, according to estimates by Allied Market Research, equal to 43 billion dollars in 2026 and a CAGR of 24%. Today, the revolution triggered by the European PSD2 Regulation not only involves the world of banks. It also involves players from other industries. New partnership-based business models are thus establishing themselves. Such dynamics in 2022 will lead an increasing number of companies that do not have financial services in their core business to implement projects in this area.

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An assessment of the actual state of the art of the change process came from a significant research project fostered by Fabrick: the Sella group entity operating internationally to promote Open Finance, together with illimity and The European House - Ambrosetti. The survey ¿How the "open" paradigm is evolving financial ecosystems¿, structured in 3 different chapters, involved a total of 630 domestic and international players, including banks.

Results presented in the first chapter, dedicated to the dynamics arising from the partnerships between incumbent and fintech companies, and aimed at identifying the logic at the back of value creation and operating models, confirm the central role of new operators in the innovation processes of the various players and the validity of the dynamics of co-operation and co-creation that are win-win for all actors. 

The study, thanks to the partnership with the Fintech District, additionally involved 227 fintech companies: 91 of which were Italian and the remaining 136 from abroad, showed the centrality of the platform model for the development of the ecosystem of the financial industry. This ecosystem, allowing the continuous and bidirectional exchange of data between all market players, makes it possible to develop products with innovative and highly differentiating customer experiences, thus enabling the combination of unconventional teamwork, competition and open models. 

The Banking As A Platform model will allow Banking participants to increasingly evolve as enabling platforms, thus developing new innovative services. In their turn, Fintech and Neobank companies will have the chance to introduce products and services based on frontier technologies, stimulating further innovation and competitiveness of both the market and non-financial actors (companies and startups). In addition, through the Embedded Finance model, they will develop new services to offer their customers an increasingly integrated customer experience.
"For incumbent companies, it is vital to create partnerships with fintech entities for the development of new products and services that can ensure the end customer a flowing and personalized experience: an element that will increasingly define their competitiveness on the market - said Paolo Zaccardi, CEO of Fabrick - In this context, a platform model that concretely allows this kind of contamination and co-creation is central. Banking As A Service and Embedded Finance are essential approaches to seize the opportunities of Open Finance, specifically if implemented within an open financial ecosystem that has a platform as its founding element. That is the model we have always believed in¿.

The main findings of the survey
46% of Fintech companies focus on product innovation as a distinctive factor in their offer, while 39% focus on new customer experience dynamics. Almost all - 74% of the development strategies focus on the principles of Data Economy by exploiting non-PSD2 data sources.

100% of these consider it essential for their business to create partnerships with other players, and 70 have already implemented or intend to implement forms of integration of third-party products/services, considering this strategic alliance to improve commercial effectiveness ( according to 32%).

Over the next three years, 43% of Fintech companies see themselves as an integral part of a platform ecosystem.

The importance of co-operation also mirrors itself in the answers collected from incumbent banks, 48% of which say that partnership with Fintechs results in the possibility of having innovative solutions, and 52% recognize the ability of Fintech companies to develop essential disruptive technologies for product innovation. 57% of them, therefore, reckoned that the Fintech offer translates in significant advantages in terms of cost structures, and an additional 25% also sees the possibility of higher services attractiveness.

Outcomes of the survey involving the Neobank segment according to which partnerships/integrations with Fintechs represent an opportunity to grow by 44%, as they cut Time to Market by 31%, are also interesting.

Finally, Fintechs are also core to develop strategies for businesses: 81% consider them vital for integrating the concept of Embedded Finance into their offer. 87% of Startups say they want to incorporate financial products by collaborating with Fintechs to develop customized solutions (42%) and create innovation ecosystems (37%).