Why Europe Is Leading In the Battle Over Your Financial Data

Thanks to the EU, they already having open banking regulations that encourage data sharing. JL

John Detrixhe reports in Quartz:

Tech companies are competing to build the dominant networks for connecting financial institutions, apps, and consumers to each other. Fintechs make it easier for consumers to share their financial data, connecting PayPal with regular bank accounts. They are also a conduit for financial institutions, as these firms can plug into a ready network of millions of users and thousands of banks, rather than building each link individually. A difference between the US and Europe is that the latter has open banking regulations that encourage banks, with the consumer’s consent, to share financial data with third-party companies.

A week after Visa bought Plaid, a Silicon Valley upstart, for an eye-popping $5.3 billion, a Swedish firm called Tink has topped up its war chest. The tech companies are competing to build the dominant networks for connecting financial institutions, whizzy apps, and consumers to each other.

Fintechs like Plaid and Tink make it easier for consumers to share their financial data, connecting the likes of PayPal with regular bank accounts. They are also a conduit for financial institutions, as these firms can plug into a ready network of millions of users and thousands of banks, rather than building each link individually. Tink CEO Daniel Kjellén says the company aims to use the €90 million ($100 million) it raised to become the “preferred pan-European provider” of these services.

While Plaid has reached a “critical mass” of users in the US, according to research analysts at Bernstein, there are signs that the playing field is more open in Europe. Plaid expanded to the UK and parts of continental Europe last year, but has disclosed little about its progress. The company will lean on Visa, its new owner, to help it grow there. (Visa is also an investor in TrueLayer, a startup that offers similar services.)

Tink has momentum in Europe. The company says its systems are live in 12 countries, from Scandinavia to the UK and Germany. The platform is connected to European banking heavyweights like Nordea in Finland and NatWest in the UK, as well as Klarna, a fintech lender based in Sweden.

Kjellén says the company makes money through a mix of licenses and pay-as-you-go services based on volume, depending on the user’s size. He said the route to profitability is important, but declined to give a timeframe for getting there. “The underlying business needs to be profitable for us to be a solid partner for our large enterprise as well as fintech developers,” he said.

A key difference between the US and Europe is that the latter has open banking regulations that encourage banks, with the consumer’s consent, to share financial data, such as spending histories, with third-party companies. The rules are meant to boost competition by making these data sharing arrangements more straightforward via an application program interface (API).

But open banking has, in some respects, been slow to take off. Some reports suggest that bank APIs can be of low quality, for example, making it harder for fintechs to build linkages with them.

Kjellén says the shift is taking place, and that the number of developers using Tink’s platform has increased to to 4,000, an increase of more than 100%  from a year earlier. “We are changing one of the largest and most important markets in the world,” he said. “It’s a long-term movement.”