By Karthik Jagannathan
Intix
Banks and fintechs across the European Economic Area have been using open banking for well over five years. Over time, the project has undeniably divided opinion. Some regard it as a major success, while others, like Starling Bank CEO Anne Boden, have criticized it as an abject failure.
Notably, Boden once famously told a UK Parliamentary committee that open banking represents "a lesson in trying to make something work when halfway through the project, we realized it wasn't going to work."
While opinions on the topic vary widely, it is hard to claim that open banking, and particularly its implementation, has been an unqualified success. Even the most ardent defenders of the initiative would likely admit that valuable lessons can be drawn from the experience of implementing the initiative, particularly ahead of similarly large-scale projects in the future.
Now, with Europe gearing up for new initiatives like the digital euro, it seems an opportune moment to ask what those lessons are.
Open banking was designed to bring fintech and traditional banks closer together, fostering innovation, competition and collaboration within the financial services industry. By requiring banks to securely share customer data (with consent) with authorized third-party providers, open banking aimed to level the playing field for fintechs, enabling them to work with traditional banks and develop new services that enhance customer experiences.
Few would argue that, on the surface, this seemed a well-intentioned and achievable goal.
Unfortunately, like many such initiatives, instead of fostering greater collaboration between companies in these fields to benefit customers, open banking exacerbated one of the longstanding fault lines that has always undermined the relationship between fintechs and banks: their inherent tendency to compete.
As is often the case, a zero-sum mindset took hold during the open banking revolution, with companies on both sides becoming overly concerned about how it might either expand or erode their market share.
While this doesn't apply to everyone, the issue did become pronounced enough to create problems throughout the implementation process. For one, it's fair to say that traditional banks could have done more to tackle issues like API standardization and imbalanced service-level agreements with third-party providers.
More broadly, there's a sense that some of these institutions overlooked the potential benefits open banking could offer their own businesses, instead perceiving it mainly as a scheme intended to give fintechs a leg up.
At the same time, some blame must also be directed at certain fintech businesses, who didn't always cover themselves in glory. Some third-party providers engaged in practices that placed unnecessary strain on banking portals, leading to technical challenges and outages that traditional financial institutions and payment service providers were often left to resolve at their own expense.
When you're trying to foster a culture of collaboration, issues like these can hinder progress, souring relationships before they have a chance to flourish. Despite these critiques, it's important to note that the implementation of open banking has generated some positives. The initiative paved the way for countless new financial products, including personal budgeting apps, personalized lending options, and SME finance platforms.
User adoption across certain territories has also been really strong, with over 7 million people in the UK alone using open banking services in 2023 and the European open banking market projected to reach approximately €20 billion (US$21.05 billion) by 2026.
Ahead of the implementation of new initiatives, such as the digital euro, which will once again require fintech businesses and traditional financial institutions to work together, there are clear lessons that must be learned from what's happened with open banking.
Above all is the need for parties across the financial ecosystem to see each other as partners, not competitors in order to foster strong, transparent and productive relationships between all involved that help to improve customer experiences.
Ultimately, fostering mutual respect and a deeper understanding of each party's role is essential to establishing a harmonious relationship. By valuing the unique contributions each institution offers, banks and fintechs can collaborate more effectively, ensuring new initiatives deliver genuine benefits for all stakeholders.
This inclusive approach promises to build a more resilient, efficient and dynamic financial landscape, driving innovation and accessibility throughout the region's financial ecosystem.
By building on the positives of open banking and addressing its challenges, there is strong potential for forthcoming initiatives to achieve even greater success.
Through closer collaboration, traditional financial institutions and fintech businesses have a unique opportunity to enhance financial experiences across Europe, creating a transformation that benefits all. In doing so, both sectors can reaffirm their commitment to working together to drive improved outcomes for their customers, and not only themselves. 
Karthik Jagannathan is head of payments advisory at Intix. To contact him via LinkedIn Karthik, see www.linkedin.com/in/jagannathankarthik. For more information about Intix, please visit: The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
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