Open finance is coming: What's your moat?

Fast Company

15-05-2025

Open finance is no longer a distant regulatory shift—it's a powerful force reshaping finance. In regions like the UK and EU, PSD2 regulations, which regulate how businesses and consumers make and receive payments, have already forced banks to open their APIs to third parties, breaking monopolies on customer data. Back-end connectors like Plaid and Yodlee have achieved critical mass, making it easier to link financial products. Meanwhile, markets like Australia and Brazil have embraced open finance frameworks, driving radical transformation.
Today, various players can weave together different components of finance. Wealthfront combines robo-advisory with FDIC-insured banking. Apple has a credit card and controls significant tap-based payments. We're seeing embedded finance in non-financial platforms like Uber alongside entirely new business models like Rocket Money for managing subscriptions. And, similar to Rocket Money, Experian has moved beyond credit bureau services to providing an app to find and reduce recurring payments.
For incumbents, the impact is visible: Customer loyalty erodes as fintechs, challengers, and native apps offer seamless, personalized experiences with better data integrations. Traditional revenue streams are under attack, and the old playbook of customer lock-in through inertia no longer works when users can switch providers by scanning a QR code or checking a box. The financial institutions that thrive will leverage open banking while identifying strong moats.
So then the question becomes: What's your moat and how do you build it?
CREATE THE TRUSTED BRAND
A strong brand and trust moat are crucial when data is open and switching providers is easy. American Express (Amex) has built a reputation for exceptional service, fraud protection, and premium rewards, fostering loyalty even in a competitive market. Amex products are perceived as prestigious, and the company strives to make customers feel valued.
How To Moat It: Pick an area where customers care deeply and focus on delivering superior products and experiences to build a loyal user base.
MAKE IT DEVELOPER-FRIENDLY
A seamless developer experience can drive adoption for financial services embedded into third-party platforms. Stripe built dominance by making payment integrations frictionless. Once developers build on a platform, switching becomes costly, creating stickiness and network effects.
How To Moat It: Invest in easy-to-use APIs and developer tools to make your platform the go-to choice for embedding financial services.
BUILD INDUSTRY VERTICAL INTEGRATION
Owning a larger piece of the financial stack within a specific industry creates a powerful moat. GlossGenius integrates payment processing, scheduling, and business management tools for beauty professionals. By controlling both software and financial infrastructure, these platforms reduce reliance on third parties, increase margins, and create deep customer lock-in.
How To Moat It: Identify an industry with fragmented financial tools and build an end-to-end solution that embeds finance directly into day-to-day operations.
CREATE NETWORK EFFECTS
The more users and businesses that rely on a financial platform, the harder it becomes for them to leave. PayPal and Venmo became dominant through widespread merchant adoption, making them default payment methods for small businesses, which in turn drove customers to establish accounts.
How To Moat It: Develop features that make your platform more valuable as more people join through. These may be easy and free P2P payments or B2B accounting platforms tools like Intuit.
EMBEDDED FINANCE AND DISTRIBUTION MOAT
By embedding financial products into popular non-financial applications for businesses where users already spend time, companies create natural stickiness. Shopify exemplifies this strategy by integrating Shopify Payments and Capital directly into its e-commerce platform, so merchants can access payment processing and finance their businesses without leaving their store management interface. Shopify also lets them pay back loans directly from payment flows.
How To Moat It: Partner with non-financial companies to embed your services, offer banking-as-a-service capabilities to let businesses integrate financial tools into their platforms, or build financial products directly into SaaS environments.
DELIVER ROCK-SOLID SECURITY
In an era of open finance, where data flows freely between platforms, security becomes a critical differentiator. Customers remain loyal to institutions offering superior fraud protection and data encryption. Apple Pay has built a strong security moat using tokenization, biometric authentication, and device-based encryption. Plaid has positioned itself as an intermediary that prioritizes security through encrypted data transfers and strict consumer consent controls.
How To Moat It: Design your product to leverage better security, like Apple Pay uses NFC, and to use the latest capabilities. Then make the differentiations clear to lay users and explain how you are protecting them.
The lesson here is clear: Rather than viewing open finance as a threat, forward-thinking companies will see it as an opportunity to redefine their role in the financial ecosystem. This can mean smart application and product design, better use of technology, or more old-school approaches like delivering superior service for word-of-mouth growth.
One thing's for sure: As open finance removes barriers to switching, every financial company needs to design a moat and figure out new ways to retain customers for the long run.