“Happy Birthday, Open Banking!”

Open Banking is celebrating its 4th birthday today in the UK. Four years on, and it is still growing and developing into an exceptional alternative to traditional banking. This is great news for all Open Banking service providers. Since Open Banking was first established in the UK in 2018, many changes have occurred that challenged our approach to banking as Open Banking facilitated financial data sharing. To celebrate this transformation, we’ll be looking back at Open Banking’s biggest milestones and what the future holds. 

The first baby steps

The story of Open Banking in the UK started on January 13th, 2018 when the Competition & Markets Authority (CMA) passed a remedies package in line with the European PSD2 Directive, in order to tackle competition problems in the UK's retail banking market. Prior to Open Banking, older and larger banks didn't have to work hard to get new customers and control the market, whereas newer and smaller banks found it extremely difficult to grow. The adoption of Open Banking made financial services more competitive by allowing new players to enter the market, as well as making data and information more accessible and secure through APIs that can be accessed by account information service providers (AISP's) like Nordigen. Ever since its implementation, Open Banking has been steadily expanding, improving the interaction between customers and financial institutions, and building new partnerships with other industry players by creating a larger service ecosystem. Open Banking is a great and innovative driver of change and contributor to the development of new services that improve customer experiences and cater to individual needs. 

Open Banking adolescence

The adolescent period has started only recently, as Europe and the UK have been slow with Open Banking implementation. However, eCommerce payments have grown rapidly since 2020 due to global COVID-19 restrictions and the world’s shift to digital services, so it is no surprise that in the first half of 2021 Open Banking-related partnerships were dominating among the TOP 200 partnership agreements. This was largely due to the rise of BNPL (Buy Now, Pay Later) services with the help of sustainability investments from Green Dot and Commonwealth. According to a research report conducted by Equifax, 55% of UK credit institutions planned on implementing Open Banking in 2021, which is a definite indication that the Open Banking services have come to stay and expand. This is great news for players within the Open Banking market, with the financial industry continuing to integrate Open Banking solutions into practices and third-party services.

Development statistics

The Open Banking impact report showed that around 8% of digitally-enabled consumers in the UK actively used at least one Open Banking service in 2021, which is steady growth from around 5% in December of 2020. In numbers, that’s 27,4 million in 2020 and 40,4 million in 2021. With this speed of growth, the next year’s estimate could range between 10-11% of active Open Banking users. The long-term estimate is that in the near future these numbers will continue to grow exponentially.

Opportunities through market changes  

The year 2021 provided for a very interesting turn of events for market players - Amazon announced the discontinuation of their partnership with Visa due to the rapid development of Open Banking and A2A payments. Visa argued that this decision cuts off a widely used consumer choice of payment, however, Amazon supported their decision by highlighting large transaction fees associated with credit card payments. While it does not influence Open Banking directly, the market players are shining the light on Open Banking services through these state of affairs. This not only means changes for Amazon, Visa, and their clients - it also further facilitates the growth of Open Banking in other major markets. This is a big win for the future of Open Banking and is bound to encourage other big platforms to follow suit. 

What the future holds for Open Banking

With rapid development of fintech services, it is evident that Open Banking has immense potential and will contribute to leading solutions in the future. With steady support and development of digital banking by financial institutions, Open Banking is likely to allow for the integration of more tech companies with API-driven Open Banking solutions. Exciting use cases are expected to appear and develop as we learn more about Open Banking and how it can help consumers, such as the growth of personal finance management apps. The most anticipated change will occur this year in March when the current 90-day re-authentication rule will be replaced with a more user-friendly solution. The 90-day rule, which was meant to protect users by requiring apps to re-authenticate permissions every 3 months, was curbing the adoption of open banking. From 26th March 2022, banks will only need to authenticate for the first access request of an account information service provider, which is a major breakthrough. This will simplify the end-user experience and lead to more satisfied users of Open Banking solutions, while still ensuring data safety.

Without Open Banking services, it would be much harder and less efficient to keep track of financial transactions and provide consumers valuable insights on their financial data. It goes without saying that Open Banking is here to stay and many more exciting developments can be expected. Happy birthday, Open Banking!