13 January marks the seventh anniversary of PSD2 and the creation of
open banking in the UK in conjunction with an order implemented by the Competition and Markets Authority (CMA)
in 2018. According to Open Banking Limited (OBL), there are now over:
- 11.7 million active users of open banking-enabled products in the UK,
- 1.7 billion API calls made per month on average, and
- 22.1 million open banking payments made monthly, of which 3.1 million were
VRP.
This seventh year of mandated open banking in the UK has been dubbed a pivotal year. The
Data (Use and Access) Bill
– now in progress – evidences the UK Government’s intent on bolstering open banking’s data sharing principles and delivering a
smart data economy, an area that could potentially be worth £10 billion over the next 10 years.
As open banking evolves in to open finance, encompassing a wider range of financial products and services, such as investments, insurance, and pensions
and into other key sectors such as energy and telecoms, the Bill will also carry forward the UK Government’s
National Payments Vision (NPV). The NPV aims to foster competition, innovation and consumer choice.
Marion King, chair and trustee of OBL, says: “As we reflect on the last seven years, we should be collectively proud of the financial innovation and the benefits
open banking delivers to consumers and businesses, as well as the wider economy. We’re at a pivotal stage in the evolution of open banking, with legislation and regulation coming forward that will not only put it on a commercially sustainable footing fit for
the long term, but also move us towards open finance and other smart data schemes.”
Henk Van Hulle, chief executive officer of OBL, adds: “Open banking is just seven years young, and much has been achieved. Adoption continues to grow month-on-month, with over 11 million active users
in November 2024. The UK pioneered with this financial innovation, and our Standard keeps on providing a blueprint for many jurisdictions across the globe. 2024 saw an unprecedented growth and delivery. 2025 will be another step change. This year will see
the expansion of open banking into the next generation of open finance and data. UK’s thought leadership on data usage and access puts the UK at the forefront of data and payments innovation globally. We will therefore have a keen eye on interoperability,
as the industry looks to enable world class cross-border data sharing.”
Go back in time and see what industry leaders were prioritising on open banking’s birthday each year:
Open banking year six: JROC’s priorities and the UK’s future roadmap
Open banking year five: The journey from open finance to open everything
Open banking year four: Beyond the CMA9 and towards open finance
Open banking year three: Insights from the CMA9
Open banking year two: Insights from the CMA9
Open banking year one: Insights from the CMA9 and more
How will open banking develop in 2025?
Cross industry growth, in favour of merchants
In 2024, the CMA confirmed the full completion of the final roadmap for open banking. This means that all nine major UK banks have implemented key services, including VRPs for
sweeping. On this, speaking to Finextra this week,
Hetal Popat, open banking director at CMA 9 bank HSBC, highlights that there has been “growth in industries as diverse as automotive, travel, property and building materials - but financial services remains the dominant sector. Through 2025
we expect this pattern to continue, as more merchants gain confidence in the resilience of open banking and invest in it.”
Valerie Nowak, executive vice president, open banking, APEMEA,
Mastercard, adds that while the CMA established the open banking market, there must be a “development of a commercially sustainable, value-based ecosystem – one where participants are all able to participate in the value being created and, knowing
that there’s a path to profitability, support investments in innovation and further market development.”
In agreement with Popat and Nowak, Jack Wilson, VP policy and research,
TrueLayer, believes that there are two major forces driving the future of the payments landscape. “The first is consumer adoption. We’ve seen incredible growth of
Pay by Bank globally, whether it’s
Pix in Brazil,
UPI in India or the rapid growth that we’re seeing here in the UK and EU. The global trend is clear: consumers want
the simplicity and security of account-to-account payments, and are shifting behaviours to embrace it.” Wilson continues to say that the second force will be merchants seeking alternatives to traditional payment networks. “Solutions like Pay by Bank are stepping
up, offering payments that are faster, more secure and more reliable.”
Rolling out VRPs for commercial use
VRPs are also a payment method that allow customers to securely link authorised third-party providers to their bank account to make payments on their behalf. VRPs are an extension of open banking technology, which lets customers share their financial data
and credentials with third-party services. Oscar Berglund, chief business development officer at
Trustly agrees with this and states that the “key new theme for 2025 will be applying open-banking based variable recurring payments (VRP) to commercial use cases.
“While the FCA will take over the regulatory oversight for open banking, the PSR will oversee the roll-out of VRP, in the first phase for lower-risk C2B use cases, which is expected to happen in the second half of 2025. With new use cases for open banking
constantly emerging, we also expect the benefits of open banking to be brought to a wider range of businesses and consumers in 2025 as the sectors help merchants to develop new services tailored to customer needs.”
The Payments Systems Regulator (PSR) confirms this to Finextra: the Financial Conduct Authority (FCA) will now
be the UK’s regulator for open banking. “The PSR will work closely with the FCA and other stakeholders to make sure there is alignment between
the phase one work already started by the PSR and the next phase which the FCA will take forward. That means in 2025, the PSR will play a key role in developing open banking through the roll-out of variable recurring payments for phase one – including utilities,
government and financial services payments. This launch is expected in the second half of 2025.”
Jon Greenall, engineering lead,
Wise, comments on this topic and says that commercial Variable Recurring Payments (cVRPs) “will be crucial for powering subscription payments, shopping online and many other use cases that are currently done via direct debits or card on file. The
industry will need to come together to deliver on this technology and we want to see the FCA, as the new regulator, help the industry make this happen so open banking can be a universal and alternative way of paying.”
cVRPs propelling open banking forward
Richard McCall, CEO, Armalytix
also calls out the rollout of cVRPs as the “most eagerly anticipated development for open banking in 2025. These payments will provide consumers with flexible and secure recurring transaction options for services like subscriptions, utilities, and pay-as-you-go
models, in much the same way as Direct Debit. However, whether we see the successful implementation of cVRPs in 2025 hinges on the industry
overcoming several key challenges tied to the multilateral way in which the implementation is being managed.”
McCall identifies the establishment of a Multilateral Agreement (MLA) to oversee this, manage risks, allocate liability, and resolve disputes among ASPSPs, PISPs, and merchants. He also recommends implementing an independent entity to operate the MLA, and
to support an agreement on a “fair and sustainable revenue-sharing structure that balances the costs and benefits for all parties,” as well as a “clearly defined approach to handling responsibilities for payment errors, unauthorised transactions, and disputes.”
If these models are designed, built and agreed – and “extensive negotiation, technical integration, and regulatory oversight” is overcome, McCall states that cVRPs could further position open banking “as a transformative force in the UK’s financial ecosystem
in 2025.”
payabl UK CEO, Kristaps Zips,
is similarly excited about “the growing use of VRPs. Initially introduced for sweeping, in the future VRPs could expand into broader use cases such as managing subscriptions, streamlining business operations for SMEs, and facilitating efficient money
movement across accounts. This has the potential to significantly improve both consumer and business experiences.”
Irina Bakanova, global head of strategy, Zing, adds that “VRPs have now been fully rolled out to the largest banks, offering greater control and transparency than existing payment alternatives. While to date the use cases have been limited,
this year, we will see greater innovation in this space to unlock new products and services, such as enabling cross-border transactions, while improving the customer experience. Alongside higher VRP adoption, we expect higher proliferation of instant open
banking powered payments in areas like e-commerce and facilitating further development of embedded finance.”
How will the Data (Use and Access) Bill be considered a key part of the government's digital agenda for 2025?
The interconnectivity of the Data (Use and Access) Bill
The Data (Use and Access) Bill was introduced to Parliament in October 2024 and aims to significantly reform the country's
data protection laws by introducing new regulations around how personal data can be used, accessed, and shared across various sectors. But what development will be seen in the first year of the Bill being enacted, or is it too early for any progress to be
made?
Charlotte Crosswell OBE, chair of the CFIT (Centre for Finance, Innovation and Technology), shares with Finextra that the
Bill “is poised to be a cornerstone of the UK government's digital agenda for 2025 and represents a significant shift in the country’s approach to harnessing data and sharing it with third parties to deliver better customer outcomes.”
Further, in addition to being focused on driving financial innovation by bringing together industry leaders, regulators, and tech companies to identify and solve challenges, Crosswell also mentions that the CFIT is progressing with the
SME Finance Taskforce being taken forward by the Treasury through reviews of the
Bank Referral Scheme (BRS) and the
Commercial Credit Data Sharing Scheme (CCDS).
“The Data Bill aligns itself closely with our priorities surrounding enhancing data-sharing frameworks and fostering trust in alternative lenders which will be vital for the UK’s financial technology ecosystem. The Data Bill also builds the foundations for
a framework to support Digital Verification and Digital ID through access to more public sector data, and we believe this will help to deliver growth by embracing a digital economy,” Crosswell shares.
This Bill has been pinpointed as a route to better customer outcomes, drive financial innovation, identify and solve tech challenges, progress SME finance, enhance data sharing, foster trust, and support digital verification and identity, so no pressure
for the UK Government…
Is the UK being too optimistic? Or is this a silver bullet Bill?
Alina Beleuta, chief growth officer at
Salt Edge, asks the industry to think of this Bill as “the UK’s blueprint for turning data into a powerful, user-friendly resource, all while prioritising privacy and security. It’s more than just fine print and regulations; it’s the engine that
will drive next-gen services across finance, healthcare, retail, and beyond—like enhanced open banking, secure digital identity solutions, and new, tech-driven ways to simplify our lives.”
Martijn Bos, director and member of the board,
Plaid BV, also has a positive view and showcases how the Bill “supports the UK’s digital agenda by enabling data portability, fostering trust in data sharing, and creating a predictable regulatory framework for innovation.”
While Truelayer’s Wilson agrees that the Bill will “support the Government’s priority of driving economic growth,” it is only if the “Bill and roadmap is as successful as its open banking predecessor, we should see an explosion of innovation, market entry
and investment, with technology companies competing to unlock value for consumers from their data.” Wilson advises that the Bill will help the UK’s standard setting body Open Banking Limited remain and expand its role.
In the same way, Melek Pirgon, chief product officer,
Modulr, also has a positive view and believes that the Bill will support “smart data schemes, pushing the digital economy forward and strengthening the UK's global leadership in financial services.” Pirgon also shares the inevitable challenges
that will come with the implementation of this Bill, “especially around making sure different industries work together to enable interoperability and giving consumers the confidence to share their data.”
Tom Burton, director of external affairs and public policy,
GoCardless, understands that the Bill will “underpin new ‘smart data’ schemes,” but if the “Government wants to realise that value it must crack on with the next steps in parallel.” Burton adds: “We would suggest that the Government prioritises
the creation of a long-term regulatory framework for open banking first. It’s the most developed smart data scheme and can act as a foundation stone for the development of open finance more broadly. It will be a lot easier to realise data sharing schemes in
energy, telecoms and transport if there are proven, live smart data schemes working well.”
The generative AI connection
According to James Simcox, group chief product officer & managing director international at
Equals Money: “By offering clearer rights and more accessible tools for managing data, the bill will ensure that consumers have a more active role in deciding who can access their financial information
and how it can be used. This increased control will build trust and help foster a more secure digital economy.”
He continued: “By making personal and financial data more accessible and easier to share, the Bill will encourage innovation across sectors, particularly in fintech. Startups will have the opportunity to leverage these data-sharing provisions to develop
new, disruptive financial services. This will lead to a more competitive market, where innovative solutions are driven by data insights, ultimately benefiting consumers with better products, more choice, and increased convenience.”
Nearly three quarters of UK financial services firms are now piloting the use of
generative AI for things like ‘co-pilot’ employee efficiency tools, according to a
UK Finance survey.
Thomas Mintoff, product director at
Flagstone, considers how the Bill will reduce “barriers to data access, it will help drive economic growth and foster greater competition between smaller organisations and established players. As technological innovation continues to surge - whether
in AI, blockchain, or other emerging fields - this bill will help shape how we train these systems while ensuring consumers feel confident their data is secure and under their control.”
Danny Haynes, chief product officer at Kroo Bank, takes this point further by stating that with “the advent of generative AI, so much potential value lies ahead, and it’s crucial the UK’s innovative ecosystem treats AI with respect, not
fear. Similarly, as the open banking roadmap is now delivered by the CMA9, it’s important that data interoperability enables innovation, leading to transformative customer value.”
How will open banking capabilities be further by the National Payments Vision?
Key payments events for 2025
The NPV was unveiled by Chancellor Rachel Reeves in her Mansion House address in November 2024, building upon the recommendations
of the Future of Payments Review 2023, otherwise known as the Garner Review. According to Armalytic’s McCall, the following key
enhancements summarised below will be prevalent in 2025:
- Account-to-Account (A2A) payments
- A cost-effective and secure alternative to card networks,
- By leveraging open banking infrastructure, A2A payments will enable consumers to transact directly between accounts with reduced fees and greater speed,
- Enhance consumer and merchant experiences while fostering competition, and
- cVRPs are critical to this vision.
Jo Toolan, managing director of client services at PayPoint,
says that “for A2A payments to rival the simplicity and trust of contactless payments in store, an industry approach to creating a frictionless payment experience is needed. cVRP and certainty-of-fate for payments are key pre-requisites to this, but they also
need to be supported by a consistent payment activation approach in store and standardised dispute and refund processes.”
- Regulatory realignment
- Oversight to transition to the FCA,
- Streamline governance and ensure consistency in implementation,
- Strengthen consumer protections, and
- Create a more cohesive regulatory framework.
In Jim Conning, director of banking & alliances at AccessPay’s
view, “by consolidating regulatory oversight, this initiative is poised to accelerate the modernisation of critical payment infrastructure. The focus on targeted improvements, guided by the Garner Review's recommendations, suggests a more streamlined approach
to enhancement. This coordinated effort between regulators should facilitate more efficient implementation of new payment initiatives, ultimately leading to improved consumer services and more innovative financial products.”
- Pathway to open finance
- Gradual expansion of open banking into open finance,
- Consumers can share data across a broader range of financial products, such as mortgages, pensions, and investments,
- Provide consumers with greater transparency, and
- Empower them to make informed financial decisions.
Azy Shojaeian, VP compliance and risk and MLRO at
Pockit, adds that the NPV allows for “greater consumer choice, improved access to financial services, and innovation. The payments sector, like the financial services sector as a whole, is burdened by the issue of accessibility: one million adults
in the UK are unbanked, and almost eight million people rely on the limited functionality of basic bank accounts.”