Nik Charalampous: Open Banking Will Transform Customer Experiences

Written by Nik Charalampous, Managing Director of CredAbility

 

Open Banking is one of the newer innovations in the finance industry. Before Open Banking, traditional banks had exclusive rights over customer data. This changed in the UK in 2017 when the Competition and Markets Authority (CMA) carried out a market investigation into retail banking. Following that, the CMA released a package of remedies designed to increase competition in retail banking services.

Open Banking was born, giving consumers greater control over their data and shaping a financial landscape focused on their best interests. Since then, the pendulum has swung from bank-centric processes to a refreshing new perspective that puts consumers at the heart of financial services.

So, what does the future of Open Banking mean for consumers and the sector as a whole?

 

The Future Of Open Banking

 

Open Banking creates a platform for personalised experiences, bridging the gap between the run-of-the-mill finance services and offers of yesterday and the increasingly tailor-made digital world we live in.

By creating a space for personalised experiences, Open Banking invites institutions to develop financial services with consumers in mind. Now, financial institutions are in an ongoing cycle of innovation and renewal, constantly competing to offer more tailored, affordable, and streamlined services to consumers.

This kind of precise personalisation needs reliable, consistent data. When Open Banking first launched, it completely altered the previous mode of data sharing, but it still demands more.

To meet the need for near-instant data sharing, financial institutions need to invest in increasingly fast, reliable, and sustainable Application Programming Interfaces (APIs).

To streamline the process, many banks have partnered with fintech firms. In 2020, financial service provider Finastra surveyed 750 global banks and financial institutions and found that 86% wanted to use open APIs to enable open banking capabilities in the following 12 months.

 

 

The Lure Of FinTech

 

Fintech companies are appealing; they offer seamless integration of new digital products, rapid scalability, and global reach. However, trying to mesh traditional banks and fintech companies is not without barriers.

Many incumbent banks have legacy systems that aren’t designed for the fast-paced world of fintech, forcing them to invest hundreds of thousands of pounds into new systems. Slow regulatory frameworks can also derail the process, favouring box-ticking over innovation.

Regardless, fintech continues to be a staple in the banking industry. There has been an evolution from what Alloy Labs CEO Jason Hendricks termed a “fintech petting zoo” intended to impress a board of banking directors into what is now a mutually beneficial relationship.

Consumers reap these benefits many times over. Instant account-to-account payments mean that consumers can purchase products quicker than ever before. According to Juniper Research, real-time Open Banking payments will increase consumer transaction volume from 252 billion in 2024 to over 600 billion by 2028.

Many merchants now provide personalised discounts and offers to capitalise on the low fees they pay on account-to-account transactions. Even better, Open Banking transactions are settled in seconds, not days, eliminating uncertainty on both sides of the payment.

Some speculate that the rapid growth of Open Banking transactions foreshadows the end of debit card payments. This is far too pessimistic and it doesn’t account for consumer purchasing trends.

 

Open Banking For Consumer Spending

 

In its 2024 Payment Markets Report, UK Finance found that debit cards accounted for 51% of all payments made in 2023. They also found that debit cards are the most used payment method among UK consumers of all ages, showing that Open Banking hasn’t eclipsed them entirely.

Open Banking has also revolutionised how fast consumers can access financial products. Consumers can greatly reduce admin time by pre-filling application forms with verified financial information, and lenders receive comprehensive, standardised data in a fraction of the time.

This is yet another example of Open Banking encouraging competition between lenders. Previously, credit applications were long and stressful. Now, consumers can input their financial information much more quickly and efficiently, encouraging them to consider a broad range of institutions for their next credit card or car loan.

Open Banking attracts those with poor or incomplete credit histories. According to research from PwC in 2022, 20.2 million adults in the UK are defined as financially underserved. The report also found that 1 in 3 adults may have difficulty accessing credit from mainstream lenders, a 50% increase since 2016.

Open Banking has seen significant growth in the UK compared to other European markets. PwC has estimated that only 2% of consumers in France, Spain, Italy, and Germany used Open Banking in 2022. During the same time, 9.2% of people in the UK adopted Open Banking.

Before Open Banking, lenders had a narrower field of information. Now that they have access to more relevant banking data, lenders can offer financial services to people with thin files or those who would have been previously rejected. Lenders are also obligated to deliver more responsible lending, leading to an overall better experience for the most vulnerable people who apply for credit.

The growth of Open Banking is nothing short of meteoric. The theory behind inclusive, instant, and personalised financial services advances quicker than the physical frameworks that support them. Regardless, I’m confident that the industry will continue to take leaps forward, combating the growing pains head-on.

 

 

Sources

• Finastra – Open Banking and collaboration: State of the nation survey 2020 | Finastra
• Jason Hendricks quote – 220110 SYNCTERA Bank-Fintech Partnerships.pdf (hubspotusercontent-na1.net)
• Juniper Research – Instant Payment Transactions to Surpass $58 Trillion Globally by 2028; Competing with Card Payments (juniperresearch.com)
• Open Banking in European markets – Latest Impact Report shows strong growth and the power of payments – Open Banking
• Payments Market Report 2024 – UK Payment Markets 2024 | Policy and Guidance | UK Finance
• PwC – Overlooked and financially under-served – PwC UK