Demand for seamless, real-time financial information is driving a shift in banking.
This shift, driven by technological advancements and global trends including open banking and embedded finance, has set a higher standard for financial services. As open banking and embedded finance become more ingrained in the financial ecosystem, baseline consumer expectations for speed, ease and transparency push financial institutions to adapt or risk being left behind.
However, the ability to meet these demands is often hindered by banks’ legacy systems, which can make innovation a slow and complex process.
“Banks typically have a lot of experience, trust and knowledge, but they lack flexibility and agility,” Moa Agrell, senior banking relations manager at Trustly, told PYMNTS, adding that this makes it harder for them to adapt to the changing landscape of payments and financial services.
“Consumers want their information, and that includes their financial information, to be easy to access, easy to use and to be instant while, of course, still remaining safe,” Agrell said.
Against this backdrop, collaboration between traditional banks and FinTech firms is becoming crucial to accelerating the adoption of open banking solutions and overcoming the challenges that financial institutions face in delivering horizon innovations to their end users.
While banks tend to be established and trusted financial institutions, many are often burdened by older systems and are slower to innovate. On the other hand, FinTech firms are nimble, less encumbered by regulatory oversight and able to experiment with new solutions through trial and error.
“These bank-FinTech partnerships allow everyone to bring what they’re best at to the table,” Agrell said.
For banks, this means using FinTechs’ ability to innovate and iterate quickly. For FinTechs, partnering with established banks allows them to tap into industry knowledge, regulatory expertise and trust built over decades. These collaborations can ultimately drive progress.
“It can be a win for the bank, a win for merchants, a win for consumers and a win for the industry overall,” Agrell said.
However, the road to successful partnerships has challenges. One major obstacle facing banks is the presence of legacy systems — layers of outdated code and programs that have accumulated over the years. When banks attempt to introduce new products or features, even minor changes can lead to unintended consequences, such as system malfunctions or broken processes.
Agrell recalled examples from her experience working with banks, including instances where outdated systems caused unexpected errors.
“You tweak something over here, and something breaks over there,” she said, illustrating the complexity of working with legacy infrastructure.
Another challenge is that some products and systems were built so long ago that there are no longer personnel within the bank who fully understand how they work, she said. This makes it difficult to adapt these systems to support modern solutions like open banking and embedded finance.
However, once these challenges are overcome, there are potential rewards. By integrating with FinTech partners, banks can offer new services without overhauling their core infrastructure.
“Consumers want everything to be instant, easy and smooth,” Agrell said.
For FinTechs and banks alike, the focus should be on testing and refining new collaborative experiences to ensure they meet user expectations.
In addition to technical hurdles, regulatory and compliance issues remain a consideration for banks and FinTechs as they navigate open banking and embedded finance partnerships. While FinTechs are often more agile, they must adhere to regulatory requirements, especially when working with regulated financial institutions.
The first step for any company looking to enter the space is to “sit down and identify where they fit in the open banking ecosystem,” Agrell said. “Different regions have different regulatory frameworks, and companies must ensure they understand the rules that apply to them.”
For example, while the United States currently lacks comprehensive open banking regulation, other regions such as the United Kingdom and Europe are further ahead, with frameworks like PSD2 in Europe or the CMA Order in the U.K. guiding the implementation of open banking.
For U.S. financial institutions and FinTechs, the absence of a cohesive regulatory framework presents a challenge and opportunity, Agrell said. On one hand, it creates uncertainty; on the other, it offers a chance to shape the future of open banking and embedded finance in the country.
Despite the challenges, the potential for growth in open banking and embedded finance is immense, Agrell said. As banks and FinTechs continue collaborating, the financial services industry will move toward a more integrated, customer-centric future.
“Nobody can do everything great,” Agrell said, adding that success will depend on the ability of different players in the ecosystem to work together.