While Money20/20 Europe had a number of themes this year — including “A Customer Universe of One” and “The Business Of Money” — AI and open banking payments really stole the show. But while the AI discussion remained mostly high-level, a confluence of factors have made open banking payments closer to mainstream adoption and therefore red-hot.
Financial Services Firms Look To Scale AI Efforts — But There’s No Silver Bullet
In the run-up to the event, we posed some questions about AI that we hoped would be explored in more depth at Money20/20. Most focused on operationalizing generative AI (genAI) — the do’s and don’ts from a legal and ethical perspective, securing budget and generating ROI, and preparing the groundwork by investing in appropriate data and risk foundations. Indeed, in Forrester’s AI predictions for 2024, we argued that the transition from hype to pragmatism didn’t mean boring AI but rather the necessary step to move toward AI delivering business value. Not all attendees have made that shift yet, however — or perhaps they are keeping their cards close to their chests. Most of the discussions focused on the current state of adoption, top use cases, and challenges.
Our new report, The State Of GenAI In Financial Services, 2024, published on the first day of Money20/20, mirrors some of these themes. But it also adds an important caveat, which is the need for business ownership. At the moment, the technology departments in financial services companies lead the lion’s share of genAI exploration. This is understandable and appropriate. After all, the tech team is responsible for onboarding genAI tools safely, setting up governance for their use, educating teams on capabilities and risks, and providing ongoing maintenance. But if financial services firms want to drive the impact that they’re hoping for — particularly revenue growth — they will need a more intentional AI strategy.
Open Banking Payments Heat Up As Stakeholders Work To Resolve Business And Technical Challenges
Changing payment methods is notoriously hard due to a complex value chain, a high bar for security and reliability, and business models that rely on scale. This is why adoption of open banking payments has grown so slowly since the Payment Services Directive 2. After the initial excitement, stakeholders — payment service providers, regulators, and merchants — have gone back to the trenches to tackle some of the big business and technical challenges.
Six years on, a confluence of factors, including the overall growth in digital payments, regulatory developments such as the SEPA Payment Account Access scheme, and fintech innovation have brought us to the cusp of rapid growth. We’re not there yet. In the UK, 8.2% of digitally enabled customers made an open banking payment in January 2024, and open banking payments represent a tiny share of total payments volume. There was palpable energy and optimism at Money20/20 Europe, however, and focus on pragmatic solutions that should see open banking payments accelerate rapidly from 2025.
In the retail context, the discussion focused on how payments stakeholders can replicate some of the success factors of card schemes — the risk and liability framework, handling of disputes and fraud, multilateral frameworks for contracts, and customer service resources. One option is the unbundling of the card proposition, layering value-added services as required. For instance, merchants could share savings achieved thanks to open banking payments with customers through explicit discounts or rewards. They could also offer insurance for transactions where customers might want the chargeback option. Where instant payments are still lacking, open banking intermediaries are also using account information to signal risk — of fraud or lack of funding to process the payment. Use cases beyond retail (for example, account funding or bill payments) are also benefiting from innovations such as one-click payments or balance checks to avoid bounced direct debits and initiate an open banking payment at a later date when funds are available.
All these innovations chip away at remaining barriers, but as executives think about the next stage of open banking payments, they must focus on value. As we’ve written before, it’s easy to become obsessed with payment methods, but it’s the experience that matters. At Forrester, we’ve developed a value framework that firms should apply to payments as they seek to create value for the ecosystem participants. Value is far from obvious. We’re quick to zone in on economic value — interchange fees or loyalty schemes. But we shouldn’t do this at the expense of other types of value that may well matter more to customers, merchants, or banks — the status symbol of having a certain card (symbolic value), the convenience and ease of a specific payment method (functional value), or the trust we embed into certain brands (experiential value).
Big thanks to the organizers of Money20/20 and its attendees for a fantastic conference. There were many more topics at the event that are beyond the scope of this blog. Clients interested in discussing these and other themes can chat with Aurélie or me via inquiry or guidance session.
