What journey has open banking been on in the UK?
The legislation was put into force in September 2019, but it was 2020 when open banking started taking off in terms of usage and it is now very much a front door to financial applications. Fintech and financial services companies value the ability to easily verify accounts and affordability, and move money through open banking integrations.
Financial institutions see open banking as a core access method and strategy to build their account plans around to maintain user engagement and position current accounts as a routing hub for people’s lives. Close to 4 million people in the UK already use open banking and it is growing by 40% each month. There were 77,000 successful open banking payments daily in August, up from 39,500 in January.
What is the next phase in open banking’s development?
Open banking has given people access to their financial data – now we are moving from accessing data to using it for payments and phase two is the scaling phase. I fully anticipate open banking payments becoming a primary payment method in the coming years. Some of the little kinks that have been holding back adoption are being ironed out, such as the rolling back of the 90-day reauthentication period by the Financial Conduct Authority, which will provide a better experience longer term.
Payments via open banking will decrease time to be paid, increase cash flow and decrease the cost to serve. When you combine this with open banking’s core offering – account information services that give merchants the ability to verify accounts and augment KYC (know your customer) – it makes even more sense why open banking payments are the future.
What should companies outside financial services understand about open banking?
Whereas traditionally you would have to be a financial institution to offer financial services, now any company with an engaged user base can offer financial services using open banking tools. One example is the gig economy. Companies such as Deliveroo and Uber have highly engaged groups of self-employed workers in their ecosystem and, using open banking tools, are starting to provide financial products such as early access to wages.
We’ve also seen the likes of Microsoft, Google and Apple delving into areas such as payments and bank accounts. These tech companies are offering core financial services and we’re seeing it across a number of different industries where businesses realise they can offer more value by building in financial services in a low-cost, easy-to-integrate way thanks to open banking. Little by little, every digital application service is becoming a financial service company – and open banking is the enabler.
Every digital application service is becoming a financial service company – and open banking is the enabler
What role is Plaid playing in this evolution?
With this growth in embedded finance and digital finance more broadly, more large companies are looking to roll out global fintech products. As a result, connectivity across geographies is increasingly important. Plaid is the only transatlantic financial data network and open finance platform. We provide the tools to scale, consistently building out new coverage and services to enable any company to easily build financial services on open banking. It’s why we have played such a big part in the growth of the digital financial ecosystem over the past 10 years.
The next wave is giving consumers the ability to put their financial data to use via payments. In 2022 we are going to see account-to-account payments grow significantly and at Plaid we want to build an ecosystem that will help make the transition easy for businesses and consumers alike.
For more information visit plaid.com/uk
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