Will Open Banking hit the mainstream in 2023?

Open banking has the potential to reshape eCommerce transactions, yet so far, uptake has been slow amongst consumers.

Since Open Banking was introduced in January 2018, UK banks have been required to make their data available in a standardised format, allowing third-party developers to build applications for financial services and enabling fast bank payments and settlement without intermediaries.

Although the number of Open Banking users reached 1 million by November 2019, the growth of this new technology has been viewed by many in the fintech sector as slower than expected. The uptake of Open Banking has been at least partially influenced by a lack of education on the topic. Research conducted by Ecommpay, for example, suggested that only 14% of UK consumers fully understood the concept of Open Banking.

Today, however, the fortunes of Open Banking look set to change, as recent usage figures and strong government commitment suggest the technology may be about to hit the mainstream. 

Ongoing government interest 

The UK has become something of a poster child for Open Banking success after the government, the fintech sector and the financial markets worked closely to go beyond Europe’s 2nd Payment Services Directive (PSD2) in the wake of Brexit.

With the appointment of Marion King, the new Chair and Trustee of the Open Banking Implementation Entity (OBIE), we see a renewed commitment from the UK government to make use of the benefits offered by Open Banking in 2023 and beyond.

The OBIE recently completed their roadmap, with six of the largest UK banking providers implementing the standards required by the CMA to deliver Open Banking, signalling the start of a new phase for the technology.

User uptake of Open Banking is accelerating

Although the number of people engaging with Open Banking is not as great as with services like Buy Now, Pay Later, which approximately 17 million consumers use in the UK alone, the figures for OB look more promising with each passing year.

The number of consumers and small-to-medium businesses actively using OB-powered services in the UK has now reached 7 million. The milestone was reached on the 5th anniversary of the Second Payment Services Directive (PSD2), which made Open Banking a requirement in the UK, and is a significant jump from the 4.5 million users we saw during the previous year.

Open Banking is still waiting for its chance to shine

At its core, Open Banking must be understood before it can be widely used and accepted by consumers and business owners. Since its inception, the technology has taken a slower, steadier approach to show its value. However, after a lacklustre March budget for the fintech sector, a frosty economic climate and the ongoing debate around BNPL still offering a distraction, there isn’t yet a clear-cut path for Open Banking to take centre stage.

Could an economic downturn provide the catalyst? 

As financial woes slow down payment volumes in certain segments of the economy, Open Banking is becoming a compelling proposition for businesses looking for faster and more efficient payment workflows. In addition, Open Banking can facilitate fast scaling into new markets, as a single OB solution supports all major EU and UK banks. 

As costs rise and margins become thinner, we can expect merchants to feel a greater need to control as much of their checkout processes as possible, whether by reducing costs or improving user experience, and Open Banking can deliver on both of those fronts. 

A harsher economic climate can also drive a rise in payment fraud. With most Open Banking transactions made via mobile devices, biometric authentication provides an added layer of security and complies with Open Banking’s Strong Customer Authentication (SCA) requirements.

Summing up

2023 could be the year Open Banking goes mainstream as a consumer payment method. However, this largely depends on whether merchants and consumers fully understand the technology and its benefits. There’s little doubt that Open Banking has the potential to bring improved financial products and services to both customers and businesses, so it will be interesting to see how the landscape evolves through the rest of 2023 and beyond.