Financial services: what to look for in an open banking provider

By now, you probably already know how open banking payments can help your business. When used with instant bank rails, they allow you to provide an instant experience for customers, including fast deposits and immediate withdrawals.

But understanding the advantages of open banking payments is only half the battle. You still need to find a provider that can help your integration achieve its full potential.

So what should you look for in an open banking provider? Whether you’re a lender looking to harness the power of variable recurring payments (VRP) or a trading company that wants to offer instant payouts, keep these three features in mind when looking for an open banking provider. 

1. Coverage

For most financial services companies, strong coverage is a must for continued growth. Limited coverage prevents widespread adoption, and poor-quality coverage can cause conversion rates to drop. So it’s natural to prioritise it when searching for an open banking provider.

Unfortunately, coverage can be a tricky thing to measure. Simply put, it encompasses all current and future customers you can serve under a single provider. But coverage quality can vary, and different providers can calculate it in different ways, making one-to-one comparisons between providers difficult. 

With that in mind, there are ways to determine whether a provider’s coverage will meet your needs. Factors to watch out for include:

Coverage type

While it’s essential to know how many accounts an open banking provider can access, it’s just as important to understand how the provider gains access.

Open banking providers can use two methods to connect to bank accounts. The first involves application programming interfaces (APIs), which provide a secure and highly regulated way of connecting to customers’ accounts.

The other involves screen scraping, which enters customer credentials like usernames and passwords on a mirrored login page to gain access to an account. These details are often stored on unencrypted servers, making them vulnerable to theft. 

Financial services firms should consider how much an open banking provider relies on screen scraping versus APIs. For companies in crypto and trading, the potential for fraud makes screen scraping a risky proposition. Even minor updates can also cause screen scraping to fail, leading to errors and damaging your user experience.

Coverage quality

Even among open banking providers who rely exclusively on APIs, there can still be  significant differences in the quality of their coverage. Best-in-class providers offer high-quality bank connections across open banking-ready markets such as Europe.

They should perform consistent testing and reliability checks to root out bugs and ensure payments APIs are working properly. And they should also be processing a high volume of requests to confirm that their infrastructure is working as intended.

When choosing a provider, it’s important to keep your target markets in mind. Prioritise companies that process high payment volumes in your key areas. Ask about their testing practices as well — a good provider will work closely with banks to proactively identify and fix issues.

2. Provider expertise

In any partnership, you want to work with a company that has proven experience in its field. Open banking is no exception. Knowledgeable and well-connected providers won’t just offer better service, but they’ll also be able to provide advice and guidance that will help you make the most of your open banking payments.  

So how do you assess a provider’s level of expertise? Here are a few things to look out for:

High payment volumes

As mentioned above, high payment volumes generally suggest that a provider can offer high-quality coverage. But it’s also an important way to gauge their expertise. 

The more payments a provider processes, the more insight they have on the open banking ecosystem. Generally, these companies will be more attuned to which regions and banks offer the best open banking functionality and can help you tailor your open banking strategy accordingly. 

By processing high payment volumes, providers gain greater insight into metrics such as conversion and success rates. They can then use this awareness to help you set more accurate benchmarks.

Industry and regulatory knowledge

The open banking ecosystem is constantly shifting. It can be easy to get lost, especially if your company operates in multiple regions. Luckily, a good provider can help you get the lay of the land. 

Industry leaders will regularly engage with working groups, regulators and government to help shape the future of open banking. As a result, good providers are often highly knowledgeable about what’s on the horizon in multiple regions. Look for companies that are leading the way in open banking initiatives in their key markets, and ask about their involvement in regulatory and policy issues.

Financial stability

Performance and industry knowledge are important factors in choosing an open banking provider. But you also want to be confident that your partner will be able to maintain continuous service, even in the face of a market downturn. 

That’s why it’s important to take a provider’s total financial wellbeing into account. Check to see if your prospective vendor is well-funded, and ask where that funding is coming from. Confirming a company’s investors and long-term plan can help determine whether they’re the right fit for you.

3. Key features

When choosing an open banking provider, it’s important to consider the specific features you want to implement. For example, a trading or crypto app will have greater need for instant payouts and withdrawals than a pension provider. 

To get you started, here are a few key open banking features that are useful to financial services firms. Your ideal customer experience should guide your thinking here. Evaluate each of the following options based on how they enhance your payments overall.

Account verification

Identity verification is a key part of the onboarding process for sectors such as lending, crypto and trading. To meet regulatory standards and prevent fraud, companies must validate the ownership of each customer’s bank account before they take a payment.

Open banking makes it faster, easier and less obtrusive for businesses to perform these checks. Using secure APIs, companies can access their customers’ bank account information and check it against the information they’ve provided. 

Not only does this speed up onboarding, but it also makes verification smoother for customers, creating a better experience in the process.

Payouts and withdrawals

In crypto, trading and wealth management, a fast payout is a good payout. Providing immediate withdrawals is crucial to creating a positive customer experience in these sectors. 

In fact, instant payouts are a great way to win consumer confidence — research from YouGov shows that 64% of investors are more likely to trust platforms that offer them, and 46% said they’d switch platforms to gain access to them.

Open banking can help companies harness this functionality. When used alongside instant payment rails, open banking payments settle much faster than other payment methods. 

But some providers don’t offer payouts, and those that do can see settlement speeds vary depending on coverage and the availability of instant payment rails. If instant payouts are important to your customer experience, seek providers that offer them and be sure to check their coverage in your areas of operation.

Recurring payments

Variable Recurring Payments (VRP) is the latest innovation in open banking. The UK’s nine biggest banks have been mandated to use VRP for sweeping, the transfer of funds between two accounts owned by the same customer. 

This will have a huge impact on companies that offer intelligent savings and personal finance management products. Imagine being able to automatically move different amounts of money from a customer’s current account into their savings each month, all without the cost, inconvenience and inflexibility of setting up a direct debit mandate or a standing order.

But the promise of VRP isn’t just limited to those examples. A few UK banks have begun to build APIs that take VRP beyond the sweeping mandate and into different types of recurring payments. Lenders, for example, could offer VRP as a way to collect repayments, while proptech firms could use them to manage rent and utilities. The possibilities are endless.

When considering emerging technologies such as VRP, it’s important to ensure a potential open banking provider is both knowledgeable about the topic and can provide a clear plan for your business. Ask about new use cases that could benefit your company, and see how they’re building and testing these applications.

Conclusion

It’s important to choose an open banking provider that understands not only the challenges that financial services firms face, but also the unique open banking environments in your target markets. By prioritising coverage, provider expertise and key features, you’ll be more likely to establish a partnership that meets your needs.

But these aren’t the only things to watch out for when looking for an open banking provider. Other elements like integration experience, ongoing support and payer experience should factor into your decision.

Read our buyer’s guide to open banking payments to help you understand what else to look for in a provider.