Open Banking must evolve to meet ever-changing consumer demands

Open Banking
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It’s not unusual for economic segments to be defined by a few major talking points each year, and in 2023 it was undeniable that Open Banking was a big buzzword in financial services, payments and fintech.

Whilst Open Banking as a concept – the notion of banks freely sharing financial data between each other – is nothing new, having been around for the best part of the last decade, it really came to the forefront in 2023.

In the UK alone, the number of users in the UK stood at 4.2 million in July, a 68.2% year-on-year increase, and this did not go unnoticed by some observers. Notably, the Future of Payments Review focused heavily on a need for the UK to upgrade its Open Banking regulation.

Commenting at the time, Ben Ruffels, VP Public Policy of Volt, observed that Open Baking in the UK ‘is at a critical juncture’. He continued: “We must get this balance right. If we do, we can take real-time payments to the next level, and turbocharge their adoption by merchants and their customers.”

Adoption of Open Banking in the UK will only continue, according to Alan Irwin, Vice President of Product & Solutions Europe, Global Payment, though he noted that increased consumer demand will require continued product development.

“With more people using Open Banking for payments, in 2024 consumer expectations of Open Banking are likely to increase dramatically,” he said.

“Consumers will demand higher levels of speed, convenience, and security around Open Banking as a payment method. As a result, there will be a renewed focus on the availability and performance of APIs and user interfaces. 

“Without improving these features, TTPs will see growth in Open Banking payments stagnate and even struggle to compete with digital wallets and standard cards.”

The main benefit Open Banking poses for consumers is the ability to make cardless payments, Irwin observed. Recent years, particularly during the pandemic era of 2020-22, have seen a huge decline in cash payments – now cashless methods are well and truly in, perhaps cardless is the next step?

From a product perspective, Stockholm-based financial services firm Tink believes that Pay by Bank will prove itself as a ‘truly innovative payment method’ which will ‘change the way we pay’.

“It gives consumers more choice and lets businesses accept instant, account-to-account payments from anyone with a bank account, in Europe and beyond,” the firm explained.

 The technology has gone from being used in ‘limited fringe cases in select markets’ to being made widely available, Tink continued, citing the example of Adyen rolling Pay by Pank products out in the UK and Europe.

Tink continued: “And the number of leading companies across all areas of financial services that now have open banking at the core of their offering is increasing all the time. 

 “Plus, the Pay by Bank user experience – already competitive – is only going to get better. So we think there is a clear advantage for merchants that are early adopters. 

“By tapping into the demand that already exists for a simple, secure, and streamlined payment experience (at low-cost), merchants can differentiate themselves in 2024 from the competition with Pay by Bank.”

It is not just UK economic stakeholders which have recognised the huge potential of Open Banking, with a group of Canadian business leaders calling on the country’s government to foster greater development of the practice earlier this year.

Explaining the Council of Canadian Innovators’ (CCI) motivation behind its petition to the government to Payment Expert, the organisation’s Director of Federal Affairs, Nick Schiavo, asserted that there is ‘huge benefit to Canadian businesses’.

“There is a need for more choice for financial services, particularly those who don’t have access and here are a number of products that could be implemented,” he said.

“Some products cannot work to their full potential because there isn’t an Open Banking regulatory framework that allows for them. It can save people money and help combat the cost of living crisis that we are facing here in Canada, particularly on housing.”

This is not to say that adoption of Open Banking will come without its challenges, however. Like all emerging and developing forms of commerce and technology, Open Banking has some regulatory and market hurdles to overcome.

Notably, Open Banking depends on the use of third-party providers (TPPs), which are given secure access to customers’ payments accounts so that transactions can subsequently be made by these TPPs without the need for a card.

This relies heavily on trust, and could prove to be a barrier for Open Banking in some respects. Looking at a very specific example, in the UK Open Banking is seen by the UK Gambling Commission (UKGC) as essential for the planned adoption of finance risk checks, which will be used to determine if a customer is financially secure enough to gamble.

For this to be successful, betting operators and TPPs need to secure absolute trust from punters that their personal and financial details will be kept secure. Meanwhile, TPPs will also have to ensure robust processes are in place to counter attempts at fraud.

“A key differentiator for Open Banking and card payments is the liability protection offered by cards through the disputes and chargeback processes,” Irwin remarked.

“Merchants and consumers alike want the power to protect themselves with tools and processes to limit financial exposure. As such, to grow in the coming year, TTPs will need to develop and implement enhanced risk and fraud prevention tools to help drive confidence in the payment channel and mitigate concerns around exposure.”