UK Open Banking Payments in 2024

A year ago, I believed UK Open Banking payments were on a roll. Total payment initiations for 2022 were 68 million payments, an increase of 171% over 2021, showing a strong foundation for Open Banking. At this rate, I believed 1bn payments a year could be reached in 2025, a level where Open Banking would be firmly established in the UK payments landscape. 

However, today I am less sure – the rate of growth of UK Open Banking payments is slowing. When the final figures for 2023 are in, I expect the annual total to be near 130m payments, an increase of just 90% over 2022, well below the previous year’s 171% growth. 

Sustained growth occurs when the number of people using Open Banking increases and when the payments per user increases. User numbers are going up each month in a linear trend but payments per user are flat at around 2.8 payments per user per month, hence the decline in the annual rate of growth. 

The issue is simple – the number of places where Open Banking payments are accepted is limited. The Open Banking entity provides some great statistics but none I can see on the number of accepting websites and applications. However, there is a healthy band of Open Banking Fintechs (PISPs) for example Ordo, Plaid, Tink, Truelayer, Yapily who are spearheading the acceptance of Open Banking payments by retailers, utilities and service providers such as FX remittance companies and securities brokers. Open Banking is dependent on these Fintechs to grow the market for Open Banking payments acceptance. 

Their biggest headwind is a banking sector that has little incentive to enable alternatives to cards which I estimate earn it around £4bn annually in card interchange fees alone, or to direct debits where insufficient fund fees can run into £100s of millions in revenue for the larger banks. Aside from variable recurring payments, Open Banking payments can be initiated only using a bank’s mobile or online app but these apps are designed around bank processes rather than around retailer and consumer needs such as for ecommerce, point-of-sale and bill payments. This is unlikely to change any time soon, limiting where it is suitable to offer Open Banking payments.

The recent Garner Future Payments Review placed Open Banking as a top priority for UK payments but skirted round these key issues and the crucial role of the Fintech sector in growing Open Banking. The review recommended the Treasury set a vision and strategy for UK payments including Open Banking. However, with a focus on regulation and consumer protection, it is a big stretch to believe the Treasury can make a beneficial difference to Open Banking acceptance and its product-market fit. The Treasury is also the driving force behind introducing a UK retail CBDC and the chances must be high that the Treasury will mix CBDCs with Open Banking in its UK payments strategy, risking a concoction where product-market fit considerations get lost in complexity.

2024 will be a defining year, but the UK Open Banking Fintech industry is on its own. My projections estimate 44m Open Banking payments in the first quarter, 93m in the first half and 206m for the whole year, a 59% increase on 2023, reflecting a continued decline in the annual growth rate.

A total of 250m payments or more in 2024 is needed to arrest the decline. This is only about 20% higher than current trends suggest and should be achieveable - if reached, it will indicate that Open Banking Fintechs are achieving deeper product-market fit and making headway in the battle for the hearts and minds of consumers, retailers, utilities and service providers, in particular through expanded uses of variable recurring payments. Even so, it will still be 2027 before the crucial 1bn Open Banking payments a year is reached, two years later than looked possible 12 months ago.

Otherwise, the risk must be that Open Banking is falling short of its full potential in payments to the detriment of UK consumers and society.

UK Open Banking data source: https://www.openbanking.org.uk/api-performance/