Open banking in Spain: where are we going?

Spain is in the midst of a banking transformation toward open banking thanks to the regulatory impulse at European level. However, adoption among bank customers is still too slow, which will have consequences in the future.

In Spain, the digital transformation of banking, rather than a future promise, is already a reality. This new financial paradigm has been accelerated as a consequence of the pandemic and the new regulatory framework, especially following the transposition of the PSD2 Directive into Spanish law. In fact, globally, open banking is estimated to be achieving annual growth rates of more than 25%, a sign that banking developments are moving toward this new scenario.

However, despite this regulatory backing and the spectacular growth of open banking in the world, its adoption remains too low in Spain, especially when compared with other neighboring countries. One thing is the supply trend, which is already part of an open banking model by regulatory imperative, and another is the reaction of demand, which is still reticent about this new ecosystem.But what is the future and where is Spain heading? Despite the limited development of open banking and the reluctance of users to embrace change, the future looks bright.

The Spanish reality: low adoption of open banking

Spanish banking customers are still too conservative in managing their finances: they continue to trust financial institutions and traditional banking services, and the benchmarks are still the large banks and, to a lesser extent, large retailers, according to the report “Adoption of open banking in Spain“, prepared by Deloitte.

But customers are also eminently conservative when it comes to security. They are wary of anything to do with their privacy, and there is no culture of sharing information with third parties, especially if this involves providing bank details. 

And all this despite the fact that the regulations are very protective of data security and privacy, as they require companies that make use of banking APIs to use double authentication systems and may only use customer data with the customer’s express consent.

Little interest in switching financial providers

Moreover, according to Deloitte’s own report, the churn rate, which measures the rate of customer churn in relation to the total number of customers in a month, is low. In fact, less than 20% of customers have shown interest in switching financial providers in the last 24 months and less than 5% actually make the switch.

This reality is to some extent a response to the acquisition of certain biases when seeking information to switch providers. Customers still rely on people they trust, such as friends, family or colleagues, rather than having digital tools at their fingertips.

The main challenges for Spanish fintechs

The progress toward an open banking model has opened up a wide range of opportunities for new players to develop new value propositions in one of the most traditional businesses. In fact, there are around 463 startups operating in Spain, according to the Map of the Fintech sector in Spain, and it has become the country with the highest proportion of fintechs in relation to its population.

Its growth has been spectacular in recent years. Taking the period from 2013 to 2021 in Spain, fintech growth has been sustained and equivalent to 1.3% year-on-year for eight years in a row, reaching figures of around 15% and 20% in the last period measured.

However, despite their growing presence, the biggest challenge for these companies today is not so much to launch new and innovative financial services, but to convince the customer to use them. In this way, it will present itself as an alternative when seeking financial information and thus mitigate resistance to change.

But fintechs also need to make progress in their relationships with traditional financial institutions. The aim is to exploit synergies between the two and to adopt mutually beneficial cooperation and investment agreements. This is precisely a critical point for improving the development of the industry, but the reality is quite different: investment in innovation by financial institutions is still too low.

Firms more open to adopting open banking

Open banking is moving at two speeds in Spain. On the one hand, the low take-up by individual banking customers and their lack of interest in change and, on the other hand, the willingness of companies to adopt systems that help improve their business processes, especially in everything to do with their cash flow.

Unsurprisingly, heads of department themselves have highlighted the need for more agile cash flow management in this context of pandemic. According to the Treasury-Non Stop survey, prepared by Euromoney, around 77% of those responsible for treasury management of companies say that real-time treasury will have a very large impact on their business systems.

What is more, over half of the interviewees in this report (57%) plan to use APIs in their cash flow processes in the coming years, particularly in the area of liquidity management. In general, the willingness to adopt open banking is much higher among corporates than among retail banking customers.

Conclusions

The current situation regarding the adoption of open banking is not unique to Spain. Regulation is in its infancy, but there is still high resistance to change and low consumer confidence. EY’s recent Open Banking Opportunity Index study concludes that this is also the case in other countries such as Australia, Canada or even the United States, where the financial sector is apparently much more developed.

Ultimately, the future of open banking should focus on gaining the trust of bank customers. Regulators will continue to play their role in creating regulatory environments that support innovation and reassure consumers, but as the Chinese experience shows, the success of open banking ultimately depends on its ability to attract users.