Over 60 countries globally have open banking initiatives live or imminently planned. The legislation that enabled open banking in the UK came into place in January 2018 and currently 8% of digital customers are estimated to be using Open Banking in their daily lives – to put this into perspective 16% of people use Apple Pay and Google Pay which were launched in 2014 and 2015 respectively. With 800million Open Banking transactions across the country compared to 750million in Germany, France, Italy, Spain, Poland, Netherlands, Sweden, and Belgium combined, the UK has taken the lead in this space.
Providing clear proof of this growth, Token, an open banking payments platform, recently announced that they have seen a 664% increase in Open Banking payments from July 2020 – July 2021. While the topic of Open Banking has been readily discussed since its inception, it has been suggested that while the ‘why’ and the ‘what’ have been established, there is a need to discuss the ‘how’.
Educating consumers on new payment methods is typically achieved through marketing by those driving the change (Credit Card Companies for Contactless Payments, Apple for Apple Pay, Google for Google Pay etc). However, until now Open Banking has been driven by regulation meaning that no-one is focussed on educating consumers on what Open Banking is.
However, this may not necessarily be a bad thing. Consumer education will occur as propositions are created that deliver real value to their customers. Once they understand that organisations can provide superior products and services if granted access to their bank account then education will occur. Adoption will likely surge as consumers use products and services that drive them to Open Banking but they may not necessarily identify this process as Open Banking. In essence, the success of Open Banking will lie its ability to add value to the consumer rather than promotion of the concept itself.
We are at the ‘tip of the iceberg’ when it comes to realising the commercial and societal benefits of Open Banking, particularly in relation to financial inclusion for the vulnerable in society. There may be issues with the word ‘open’; and while consumers might be interested in using Open Banking payment methods, a lack of education in the sector could lead to unfounded concerns about the security of their payment details.
When looking at Variable Recurring Payments (VRP), there is a need for transparency for both merchants and customers when it comes to driving education and adoption. The ability to provide security, transparency and an improved user experience paves the way for VRP to replace Direct Debit’s more blunt, bilateral approach to recurring payments. Incumbent banks will look to be reactive to developments in this space, but it is currently unknown how VRPs (non-sweeping) will be delivered. An example of this is the lack of clarity around what the onboarding process looks like for Third Party Providers (TPPs.) Incumbents are undoubtedly keen to see a uniform onboarding process across the market. However, ambiguity around liability and definition of ‘customers account’ means that it is likely every application will be considered on a case-by-case basis. This may create issues for smaller organisations that do not have the legal resources available to undertake this process.
Collaboration and partnership are central to driving widespread education and adoption in Open Banking, and communication between banks and Open Banking platforms must remain transparent as this sector develops. With approximately 300 Payments Initiation Service Provides (PISPs) currently operating in the UK, consolidation is expected.
To-date the nine largest banks in the UK (CMA9) have incurred the costs of delivering Open Banking and it is the TPPs that have reaped the rewards. VRPs (beyond sweeping) represents a mutually beneficial opportunity for banks and TPPs alike if navigated correctly, however this will require strong collaboration between the banks and the TPPs to create a commercial model which generates value across all parties.
