What’s in Store for Open Banking in 2022?

By Andries Smit CEO and Founder of Upside

The future of finance is in open banking, that much is clear from its exponential rise in popularity in 2021. Already transforming the way we control our finances and pay for products and services, open banking shows great potential to further disrupt financial services while creating a prominent market opportunity across multiple sectors.

Open banking has accelerated fintech growth and, as it goes from strength to strength in the UK, increasing numbers of retailers are adopting open banking technology as part of their business strategies. We can expect open banking to continue bringing significant benefits to the businesses that embrace it, as well as a rise in new and innovative products entering the market as the technology develops.

I anticipate that, as user numbers grow in 2022, this technology will begin to evolve far beyond our expectations and open the door to new opportunities that would have been unimaginable not so long ago.

Open Banking Growth Will Be Boosted By OBIE

In 2022, the new Open Banking Implementation Entity (OBIE) management will create a new drive of energy and push harder on banks to provide better data, better service, and more functionality for consumers to ensure this growth continues. The UK has led the charge on Open Banking globally, it can’t afford to now rest on its laurels.

Open banking has opened doors for increased competitiveness, new product offerings, access to new customers and previously unreachable markets. We can expect to see even more of this in the next year under the new guidance of OBIE. But so far, the awareness and use cases are concentrated around financial services, banking, wealth management and credit.

In non-bank sectors like retail, the benefits of open banking are only just beginning to be realised, so we can expect to see this snowball particularly as the integration of financial services at point of sale for ‘account to account’ (also known as ‘pay by bank’ or ‘PISP’) becomes a consumer expectation, not just a convenient bonus.

We’re sure to see several success stories in this space in 2022 so keep your eyes peeled, but it is also likely there will be those left behind by this rising trend.

Variable Recurring Payments Will Spark a Long Overdue Digital Transformation

Over the next year and beyond, it will be interesting to see how Variable Recurring Payments (VRPs) will continue to develop to allow businesses to connect to authorised payment providers to make payments on the customer’s behalf. Direct Debits, which is the main mechanism in use today, is expensive, slow and has a painful mainly paper-based process today. It’s long overdue for digital transformation.

I anticipate 2022 will be the year we begin to see VRPs in full effect. This will provide countless opportunities for consumers to find new ways to manage their finances. As VRPs progress, we will discover that they will do far more than simply paying bills and will unlock aspects of smart saving, one-click payments, and control over subscriptions.

It will also be important to address issues that work against the great benefits of open banking in the near future. The 90-day reauthorisation rule, which requires open banking providers to re-confirm consent with the customer every 90 days, must be addressed. This rule currently undermines the principles of convenience and ease that open banking has been working on showcasing.

The FCA has already consulted on the matter and issued guidance for possible changes in the future. We must be able to rethink this rule to prevent ongoing friction between the user experience and customers to truly allow open banking to flourish.

End-user Adoption of Open Banking Will Exceed 10 million by the End of the Year

Open banking will certainly continue to provide a huge boost for market competitiveness, with the ability to tailor services and products thanks to data access.

End-user adoption of open banking, which currently sits at just under 4 million, will more than double to over 10 million by the end of 2022. As account-to-account payments become common practice, and new use cases emerge we can expect end-users to become increasingly comfortable and familiar with this technology.

Currently, most countries broadly fall under two implementations of open banking across the world: a “market-led approach” or a “regulatory-mandatory” approach. I believe it won’t be long until more countries globally have formal open banking regulations and policies to solidify the position of open banking in the world. However, despite regulations in the UK already being in place, we need to be aware that the creation of fully functioning cross-industry regulations across different open banking ecosystems will take time.

Nevertheless, following President Biden’s recent executive order kickstarting open banking in the US, 2022 will be an opportunity to see real growth in open banking globally. Innovative international partnerships will enter the market and will continue to increase end-user adoption and further innovation as a result.

Open Banking Will Continue To Boost Financial Inclusion

The issue of financial inclusion in the UK has greatly benefitted from the emergence and rise of open banking. As it’s growth continues and financial services become more accessible and easier to use, I expect 2022 to see a further decline in numbers of those considered excluded from financial services.

Addressing barriers to adoption of open banking is also crucial here. Once the UK breaks free from the Payment Services Derivative 2 (PSD2) at some levels with a more relaxed approach, we can focus on the frictions that are causing these barriers and how to negate them to ensure the continued boost of financial inclusion efforts. When these barriers finally disappear, and I expect they will in the near future, then open banking will truly be reaching its full potential.

Open Banking is still in its youth and has many places in which to develop and growth. Nevertheless, it has arguably kick started the beginning of a total transformation of financial services. Because of this, retailers would be wise to keep one ear to the ground to ensure they remain at the forefront of delivering on shifting consumer demands and meeting their needs.