The next phase of open banking innovation

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.

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

Pro­mot­ed by Plaid