In the UK, the number of Open Banking users has just reached 10 million. Despite a slow start, adoption is steadily increasing, showing a reasonable increase in both users and transactions. But given its highly anticipated potential, shouldn’t we expect more?
The low-cost payment rails help offset rising costs, and access to data to improve the consumer experience – particularly with GenAI – should lead to greater adoption of open banking. This technology also represents an opportunity as retailers such as M&S and John Lewis look to improve their loyalty programs.
There is still a lot to do, but the outlook is positive. If the UK can capitalize on the opportunities open banking brings, it can reclaim its title as a payments leader.
A marathon, not a race
Open banking initially faced several hurdles that affected its adoption rates. Key challenges included the lack of a customer dispute process and the need for a simplified business model, which contributed to a slow start. However, current data suggests a significant increase in both transactions and user numbers.
According to the Open Banking Implementation Entity (OBIE), there were
1.2 millionOpen Banking payments in July 2023 alone, representing a 180% increase year-on-year. The number of payments recorded by OBIE reached a record high
14.5 millionin January 2024, shows a 69% compared to the previous year Growth.
This rise in open banking shows that these fundamental issues are being addressed. However, we need proactive measures from companies to drive adoption even further, especially in today’s economic climate.
An alternative in a high-cost economy
We’re all trying to cut costs – not just individuals, but businesses too. There may not be a perfect solution, but there are definitely tools that can help. Take credit cards for example. They are still widely used, but the fees associated with them can significantly reduce a company’s profits and place a financial burden on traders.
Open Banking makes bank transfers significantly cheaper and faster compared to card payments. However, this does not mean that traditional methods should disappear. If merchants can migrate some payments to open banking, they will realize cost savings. Here, merchants can turn this economic challenge into an advantage by embracing open banking to maintain profitability.
Since both businesses and consumers may eventually look to switch from expensive credit cards to open banking, loyalty programs could be the catalyst for mass adoption of open banking.
The catalyst for open banking
If open banking can bring significant benefits to merchants, what about the consumer? If we want to see mass adoption of open banking, retailers need to incentivize it through their loyalty programs. Just as we see the partnership between British Airways and American Express encouraging consumers to use their Amex for payments to earn Avios rewards points, similar models can be applied to open banking.
Other companies such as M&S and John Lewis are focusing on loyalty and rewards programs due to changing ways people interact with financial products. They are looking for more sophisticated loyalty programs that offer more insights and a more advanced user experience.
And to take it a step further, companies need to examine how leveraging data can transform this experience even further. With the integration of GenAI, they can achieve personalized services, tailored financial advice and tailored product offerings, which are just some of the possibilities.
It’s about analyzing the customer’s spending behavior and offering corresponding rewards and programs in return. However, for this change to take place, large companies must also be involved.
Big players want to revolutionize
The infrastructure to support open banking is well established in the UK. Banks are integrated and the data and payment flow is seamless. However, for open banking to achieve mass adoption, it requires support from major players such as Apple Pay and Google Pay.
We’re seeing significant progress with Apple Pay in the UK, which has launched integrations with six UK banks (Barclays, HSBC, Lloyds, RBS, NatWest and Monzo) to display account balances and information in the Wallet app, and credit scoring functionality is expected to follow.
But with the rise of open banking users in the UK, expectations of the market leaders have now skyrocketed.
Looking ahead
Open banking has made significant progress, but its full potential has not yet been fully realized. This should be viewed as a collective effort, not just the work of individual companies. All stakeholders must expand the use cases of open banking, harness the power of data and turn economic challenges into opportunities.
The support of key actors is crucial for this. Although the journey started slowly, we are now seeing the fruits of the efforts so far, leading to a more promising future for open banking.