Is slow and steady enough for Open Banking?

Open Banking users just hit 10 million in the UK. Despite a slow start, adoption is steadily increasing, showing a reasonable rise in both users and transactions. But given its much-anticipated potential, shouldn’t we expect more?

The cost-effective payment rails help balance out rising costs, and access to data to boost the consumer experience – especially with GenAI – should all be driving greater adoption of Open Banking. This technology also presents an opportunity as retailers like M&S and John Lewis seek to enhance their loyalty programmes.

While there is still work to be done, the outlook is positive. If the UK is able to capitalise on the opportunity Open Banking brings, it can reclaim its title as a leader in the payments space.

A marathon, not a race

Open Banking initially faced several hurdles that impeded its adoption rates. Key challenges included a lack of a customer dispute process and the need for a simplified commercial model contributed to a sluggish beginning. However, recent data indicates a significant uptick in both transactions and user numbers.

According to the Open Banking Implementation Entity (OBIE), there were 1.2 million Open Banking payments in July 2023 alone, reflecting a year-on-year increase of 180%. The number of payments recorded by OBIE reached a record high of 14.5 million in January 2024, showing a 69% year-on-year growth.

This increase in Open Banking indicates that these foundational issues are being addressed. However, we need to see proactive actions from businesses to propel 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 might not be a perfect solution out there, but there are definitely tools that can help. Take credit cards, for example. They're still widely used, but the fees associated with them can really eat into a business's profits, putting a financial burden on merchants.

Open Banking makes bank transfers both cheaper and faster, significantly so when compared to card payments. However, this doesn’t mean that traditional methods should disappear. If merchants can migrate some payments over to Open Banking, they will see cost savings. This is where merchants can turn this economic challenge into an advantage by being open-minded about Open Banking to maintain profitability.

As both businesses and consumers may eventually try to move away from expensive credit cards and towards Open Banking, loyalty programs could be the catalyst for mass adoption of Open Banking.

The catalyst for Open Banking

If Open Banking can create significant benefits for merchants, what about the consumer? If we are to see Open Banking mass adoption, retailers need to incentivise it through their loyalty programs. Just as we see the British Airways and American Express partnership incentivise consumers to use their Amex for payments to earn Avios reward points, similar models can be applied to Open Banking.

Other companies such as M&S and John Lewis are focusing on loyalty and reward schemes because of the change in the way people want to engage with financial products. They're looking for more sophisticated loyalty programs which provide greater insight and a more advanced user experience.

And to take this a step further, companies need to look into how leveraging data can transform this experience even more. With the integration of GenAI, they can look into achieving personalised services, tailored financial advice, and customised product offerings, which are just a few of the possibilities.

So, it’s all about analysing the customer’s spending habits, and offering relevant awards and schemes in return. However, for this transformation to occur, big corporations need to be in the picture too.

Big players set to revolutionise

The infrastructure to support Open Banking is well-established in the UK. Banks are integrated, and the flow of data and payments is seamless. However, for Open Banking to achieve mass adoption, support from major players like Apple Pay and Google Pay is needed.

We’re seeing significant steps forward with Apple Pay in the UK, which has launched integrations with six UK banks (Barclays, HSBC, Lloyds, RBS, NatWest and Monzo) to show account balances and information within the Wallet app, and credit score features expected to follow.

But with the surge in Open Banking users in the UK, expectations for market leaders are now through the roof.

Looking ahead

Open Banking has made significant strides, yet its full potential has not yet been fully realised. This should be viewed as a collaborative effort, not just the work of individual businesses. Everyone involved needs to expand Open Banking use cases, leverage the power of data, and turn economic challenges into opportunities.

Support from major players is crucial for this to happen. Although the journey started slowly, we’re now seeing the fruits of the efforts made so far, leading to a more promising future for Open Banking.