With internet banking and digital payments surging since the turn of the millennium, the concept of open banking has become more dominant. First explored in 2003 as part of the open innovation movement, open banking has come a long way and we now find the number of businesses and consumers using the protocol surging.
The UK’s open banking regulations came into force in 2018 and since then more and more people have been taking advantage of the way their data has opened up – with banks securing access to reams of third-party data through application programming interfaces (APIs).
This represents a step change in how businesses and their customers go about banking, unlocking new opportunities for financial firms to flourish.
The origins of open banking
From its humble beginnings as an idea in the early 2000s, open banking has now received regulatory backing with a focus on opening up the data that banks hold on customers. Under the EU Commission’s PSD2, providers must let customers easily and securely share data with regulated third-party providers.
When the PSD2 was first announced in 2015, open banking wasn’t a well-known concept. By 2017, the majority of the public still hadn’t heard of it according to a Which survey. Among those who understood the idea, the concept could seem scary. For a security-conscious society scared of being scammed or robbed online, data sharing can sound concerning.
But open banking is safe by design and, since its rollout, it has unlocked the capacity for businesses to build apps and services as a new layer on top of the traditional access to data. For example, customers with accounts in multiple banks could see all this data in one location for the first time with open banking.
Smaller businesses such as comparison sites have benefitted too, as open banking makes it easier to compare financial services, while developers can create apps with more features such as spending trackers and automated financial controls.
The rise of open banking
Open banking has enjoyed phenomenal growth in the UK since it came into force. The latest Open Banking Impact Report cites data from Open Banking Limited (OBL) and PwC which found that in the first six months of 2022, 9.2% of UK digital consumers actively used open banking compared to 2% in France, Germany, Italy, and Spain.
The proportion of digitally active consumers who use open banking has grown to 13% as of January 2024, with 18% of small businesses also adopting the technology.
The number of Payments transfers made through open banking has also been rising over the last four years, according to the Open Banking Impact Report. These are money transfers that happen in near real-time and are available through services such as NatWest’s Payit™. The data showed open banking payments of this kind reach 4.3% in January 2024, up from 0.5% in January 2020.
It's not only payments in the ascendency, but data too. even though open banking penetration in terms of payments overtook data for the first time in 2023. From a previous high of 6.9% in May 2022, data penetration for all users dipped to 6.4% in September the following year.
Since the start of 2024, there has been a return to growth – with the figure rising again to 7.2% – a record high. The Open Banking Impact Report cites the rollout of open banking in iOS 17 in November 2023 as a key factor that may explain the growth in data connections, although the HMRC payments in January 2024 are another huge factor.
Implementing open banking successfully in 2024
There has been an explosion in apps and services that take advantage of open banking principles, so it can feel daunting to find the best provider and integrate its service into your business operations.
Adopting open banking solutions can help businesses cut costs, tackle late payments, and deliver real-time business insights.
By utilizing transfers through services such as NatWest’s Payit™, businesses could also reduce the transaction fees you would expect from card schemes. For many in the e-commerce space, there are plenty of services that let you collect payments from customers without much hassle – but it can be tricky to weigh up your options and decide on the best bet for your organization.
A great starting point, when considering adopting open banking, is to focus on a handful of capabilities, rather than casting the net too wide and risking an unfocused approach to adoption. Consider whether you’re looking for a dedicated app or an API to host in your current environment, such as the Payit™ API.
"Inherent uncertainty about how the future will unfold – in terms of customer uptake, regulatory evolution, competitor actions, and unexpected innovations – make it infeasible for companies to chase all the possible Open Banking opportunities," according to a PwC report into open banking. "They need strategies that will help them prepare for the future, guiding decision-making about their future business models and operating models."
The report called on businesses to develop clear ideas about their customers, propositions, and how to develop the agility to cope with future change. It's also critical that businesses are clear about how they will differentiate themselves and focus on building the essential capabilities to support their chosen strategy.
When seeking open banking opportunities, businesses should also focus on finding the APIs that can integrate well with their overall business goals and their strategic priorities. Once all of this is under control, organizations can continue to reap the benefits of open banking as it continues to rise in popularity.
Disclaimer
You will need to sign up to Payit™ terms and conditions and you may need to hold an account with us. Your business must be based and trading in the UK with a turnover above £2M. You must be 18 years or older. Fees are based on the volume and average value of transactions.
