PYMNTS-MonitorEdge-May-2024

UK’s Open Banking Milestone: What 10 Million Users Mean for UK’s Financial Services Future

While open banking starts to gain traction in the U.S., across the pond the banking and payments sector is celebrating milestones. Last week it celebrated ten million active users. Is that a good number? Consider two facts before you answer. One: Ten million users is 15% of the entire U.K. population. If 15% of the U.S. population was using open banking, that would be about 50 million users. Two: Just 18 months ago that U.K. number was only six million open banking users.

So, is ten million a good number? PYMNTS put the question to Marion King, chairperson and trustee of the U.K.’s Open Banking Ltd regulatory and advocacy group. And while she’s certainly not resting on any laurels, she’s satisfied that the government-mandated direction from the country’s top-tier financial institutions to make data sharing and new payment options available will lead to more success in the short term. Part of that momentum, she told PYMNTS, will come from the next tier of banks and their business customers.

“It’s a very good number,” King said. “We’re seeing really strong double-digit growth. And I think this is just the beginning, because you need to remember that this is only measured from the nine banks that were involved in the Competition and Market Authority’s initial open banking effort — so it could actually be higher. So double digit growth month on month is very positive, and I think it shows pent-up demand for secure data exchange as we move forward with all of this.”

Moving forward from the 10 million-user milestone started at a “Strategy Summit” on July 26 with several analysts, banks, neobanks and government regulatory agencies. At that meeting Andy Sacre, head of payments for U.K. neobank Monzo, told the audience that around six million of Monzo’s customers have used open banking — sharing their data to get better credit card rates, paying their tax bill, or connecting other bank accounts to their Monzo app so they can see everything in one place. Those are just some of the use cases King believes have made open banking in the U.K. a viable commercial proposition.

“One of the biggest use cases we have is the ability for people to pay their tax bills through their bank account without sharing any account details,” King said. This feature bypasses traditional card systems, offering a secure and direct payment method. The U.K.’s HM Revenue and Custom’s agency (its version of the IRS) collected over £3 billion at the beginning of the year from tax returns using this method.

Another significant application is in the SMB sector, where open banking facilitates the integration of accounting packages, minimizing manual systems and supporting real-time cash flow management. King also pointed out the not-for-profit sector is also benefiting, with organizations like Salad Money leveraging open banking to offer secure loans to those traditionally underserved by the banking system.

Looking Across the Pond

In the U.S. companies like Trustly are moving open banking forward, as are Visa and Mastercard with their API strategies. A PYMNTS Intelligence report, produced in conjunction with Trustly, found that nearly half of U.S. respondents are highly willing to use open banking for at least one type of expense, including monthly bills, groceries or subscriptions. Despite high interest in this method, it comes in third place behind paying via manual input of their account and routing numbers and using bill pay services offered by their banks. The study found open banking providers must confront an awareness gap: 44% of non-users said they were not familiar with the payment method.

Looking across the Atlantic, King suggested four cornerstone strategies to catalyze open banking in the U.S.:

1. Regulatory Framework: Compel data sharing among financial institutions to ensure participation and ecosystem viability.

2. Economic Model: Develop a model that makes data access economically sustainable, ensuring it supports innovation and compensates data providers appropriately.

3. Technical and Data Standards: Establish uniform standards to maintain service quality and reliability.

4. Broad Participation: Encourage wide participation across financial entities to enhance service accessibility and utility.

“These elements are crucial for creating a thriving open banking environment that benefits all stakeholders,” King said.

But while 10 million is a good number, the U.K.’s roadmap to expand open banking usage to 20 million revolves around increasing participation across the economy and launching innovative payment methods like variable recurring payments. VRPs, by Open Banking U.K.’s definition, are payments that let customers safely connect authorized payments providers to their bank accounts so that they can make payments on the customer’s behalf, in line with agreed limits. VRPs offer more control and transparency than existing alternatives such as Direct Debit payments.

“These enhancements put more control into the hands of consumers, aligning with our goals of transparency and user empowerment,” King said.

King is optimistic about the role of Big Tech in open banking, citing Apple’s integration of open banking features in the U.K. as a pioneering example. “Big Tech’s engagement will significantly boost user volumes, provided we maintain a strong commercial framework,” she noted.

As for ongoing challenges, King emphasizes the importance of continuous attention to fraud prevention and consumer protection, ensuring that as user numbers grow, the system remains secure and trustworthy.

“It’s not just about financial services, it’s about fostering a data-sharing economy that benefits everyone. The U.K.’s approach, combining mandated participation with voluntary contributions, creates a model that others, including the U.S., could learn from,” King said.

She also mentioned the support from the new Labour government in the U.K., expressing optimism about their enthusiasm for open banking and the broader implications of data-sharing policies. King highlighted that the Labour Party has already initiated a standalone bill for smart data and digital identity, which includes open banking, demonstrating their commitment to advancing these initiatives.

With government support and strategic industry collaboration, King is confident that open banking in the U.K. will not only reach but potentially exceed the 20 million user milestone. “We’re setting the foundation for a future where financial services are more inclusive, innovative, and securely integrated into our daily lives,” King said.

PYMNTS-MonitorEdge-May-2024