Though applications of the U.K.'s open banking framework have grown more diverse since its launch in 2018, the initial excitement behind the regulatory initiative was its opportunity to lower barriers to market entry for new FinTechs, and to augment competition in the financial services world.
Open banking certainly has opened up the opportunity to drive innovation by connecting developers with data once locked behind traditional banks' walls. But the barriers to entry remain extremely high for up-and-coming FinTechs — sometimes too high, according to TradeCore CEO Stefan Pajkovic.
That's not to say open banking has failed, however. On the contrary, the framework became an instrumental component to TradeCore's latest offering, a platform for FinTech developers that can streamline and standardize much of the initial processes of creating a product and getting it to market. In a recent conversation with PYMNTS, Pajkovic explored how open banking has, and hasn't, addressed some of the biggest hurdles innovators need to overcome in order to launch.
While FinTechs have proven their versatility, tackling an array of niche markets and customers with everything from personal mobile investing to corporate spend management, Pajkovic noted that all FinTechs face the same initial challenges when first building a product.
"We came to the realization that for almost every company, the first 12 months and first $1 million were spent recreating a stacked set of features and infrastructure that every single FinTech business needs to operate," he explained, highlighting capabilities like customer on-boarding, payments and data connectivity as foundational to all market players. "There was an amazing opportunity to reduce the tax that every business way paying by standardizing this capability and offering it as a service."
That's the crux of the TradeCore platform, recently launched to standardize and accelerate the process of building that foundation upon which FinTech solutions sit.
Historically, though those foundations look similar no matter what kind of FinTech is being developed, the process of building it has been so taxing that Pajkovic said he's seen innovators simply give up or no longer pursue launch.
Compliance, he pointed out, is a particularly challenging hurdle to overcome.
"We would engage our customers from the technology side, but they would potentially get lost when attempting to build regulatory capabilities," he said. "People underestimate the time and effort and money required to enable those regulatory compliance capabilities."
By offering a platform that can not only streamline the process through which developers add basic functionality to their solutions — like card issuance and payments — but also streamline compliance due diligence like know your customer (KYC) workflows, Pajkovic noted the barriers to market entry can lower significantly.
Yet FinTechs continue to struggle, despite gradual proliferation of open banking.
"On one hand, [open banking] is an avenue to provide people much more control over their transactional data, giving them the ability to have more freedom to move between banks," said Pajkovic. "But at the same time, it's not something that has taken the market by storm yet. The capabilities are there, but utilization has not reached the levels that we expected."
While open banking may not have addressed every challenge developers face when creating and launching new products and services on the market, the framework has been instrumental in creating new products to address those hurdles.
For TradeCore, both of the framework's key capabilities — account information services and payments initiation — have allowed the platform to integrate capabilities like card issuance and digital banking.
As the FinTech ecosystem grows more mature, Pajkovic said he expects the companies that have already made it past the initial hurdles to market entry to take on a new strategy for growth. Pointing to companies like Robinhood, which recently expanded beyond investing and into banking, as well the Cash App, which has similarly broadened its reach beyond peer-to-peer transacting into the cryptocurrency investment arena, Pajkovic highlighted that fewer FinTechs will take the "supermarket" approach to product development, in which they provide a niche solution that can be combined with other third-party providers.
Instead, the competitive advantage evolving today for many FinTechs is to operate as a one-stop-shop for end users, meaning these companies will need to further embrace open banking to expand their own product offerings.
"Every product and every FinTech that has even a single relationship with a client of a financial services nature will seek to enhance and enlarge their capabilities to provide customers with additional financial services," Pajkovic predicted.