January 13th marked the fourth anniversary of the Payments Services Directive 2 (PSD2) making open banking a regulatory requirement in the UK. Open banking has transformed the way that millions of consumers and small businesses are in control and can leverage their financial data, as well as supporting the UK’s position as a global innovator in financial services.
Open banking was mandated by the Competition and Markets Authority (CMA) in January 2018 with an aim to improve customer choice and boost competition in the retail banking sector by allowing individuals and businesses to securely share their financial data to their benefit. This work has been led by the Open Banking Implementation Entity (OBIE), who has worked closely with the government, regulators, industry and consumer and SME champions to create a world-leading open banking ecosystem.
There are now over 4.5 million regular users of open banking – 3.9 million consumers and 600,000 small businesses. In the past 12 months, the OBIE has seen a 60% increase in new customers (up from 2.8 million in December 2020). Momentum is increasing too, with the addition of 1 million new regular/active users every 6 months.
A collaborative effort
Fundamental to open banking’s success is the OBIE’s technical standards and delivery of a back-end infrastructure that guarantees the performance of the open banking technology. This, coupled with the collaboration between new and established financial services providers who have developed open banking-enabled products and services, has created a thriving ecosystem.
A testament to the constant innovation, is that at any given time, there are around 125 open banking enabled products and services live with customers within the open banking ecosystem.
Rise in open banking payments
One area that has seen a significant increase in use is open banking enabled payments. Open banking payments allow customers to pay for services or goods in shops or online directly from their accounts rather than using a credit or debit card, as well as creating competition and choice in ways to pay and be paid. Earlier in 2021, HM Revenue & Customs (HMRC) became the first Government department in the world to allow users to make open banking payments. To date, more than £2.4bn has been made using this method, which significantly reduces the risk of fraud, customer error when making the payment as well as the cost of transaction too – saving taxpayers money.
At the end of 2021, cumulatively over 26.6m open banking payments have been made. An increase of more than 500% in 12 months.
Open banking use in the real world
In addition to the growth of open banking payments, this year the OBIE published its second Open Banking Impact Report showing how open banking enabled products are having a tangible benefit for customers. Amongst the key findings of the research is that those customers using personal finance management apps, 75% said is helping them to keep on top of expenditure and keep to a budget (64%). Similarly, 64% claimed that savings apps had increased their total level of savings, providing a financial buffer – this was the first time that nearly a quarter of those had ever saved.
The data shows over three-quarters (76%) of people saying they will or are likely to continue using the services and 90% reporting they are easy to use and set up. 83% of respondents indicated that they would be interested in expanding their use of open banking-enabled services.
2022 will see continued growth of open banking in the UK
The OBIE predicts increased momentum of open banking adoption in the UK in the year ahead, with more government departments adopting it too. There is further potential in financial products that merge data and payments, and the large UK banks’ implementation of Variable Recurring Payments, akin to smart direct debits, for moving money between your own accounts (known as “sweeping”).
Further consideration is being given to the future arrangements and governance of open banking and the OBIE will work closely with the CMA and other stakeholders to deliver this.
Charlotte Crosswell, Chair and Trustee, Open Banking Implementation Entity (OBIE) said: “The progress made by the entire industry during the past four years to make open banking in the UK a success has been astounding. I’m proud of the contribution that the OBIE has made, enabling and supporting ground-breaking financial innovation and collaboration across the sector. This wouldn’t have happened without a strong regulatory framework and forward-thinking policymakers to support our work. We have set a high standard in the UK, inspiring many other markets to follow our lead.
“Ultimately, I’m delighted that we are beginning to see how open banking is giving people more control over their money. The pandemic has changed consumer behaviour, with an increase in the use of digital and financial services. We continue to see customer growth alongside new and exciting products, and as even more are introduced into the market, open banking will become increasingly mainstream. That will be key to taking user adoption from over four million to tens of millions.
“The new OBIE Board remain committed to strengthening our governance and culture, a key focus as we move open banking to the next phase in its journey.”