Open banking has become a key innovation catalyst, impacting various sectors such as B2B fintechs, tax offices, corporates, climate tech companies, and the rental market. The data sharing between financial institutions and third-party service providers via APIs has expanded from primary account aggregation to digital identification journeys and personal financial management that support current and future decisions. Open banking payments have seen significant growth, with payments increasing by 10% month-on-month in the UK, making it a cost-effective method for businesses and merchants.
However, challenges remain for those building open banking-powered products, including low consumer and business adoption and concerns about data privacy and changing payment behavior. Despite these challenges, open banking is being used in various emerging use cases, such as powering the climate tech space by quantifying an individual’s carbon footprint and providing tailored climate action plans. Open banking is also being utilized in digital identity workflows by banks and fintechs to improve back-office processes and customer authentication. Additionally, PropTech firms are using open banking to assess the risk of potential renters and create improved risk assessments for landlords via rental scores.
Account to Account (A2A) payments, also known as Pay By Bank, are increasingly being adopted by businesses, merchants, and government agencies as a cost-effective and secure payment option. Open banking-powered A2A payments have been adopted in various sectors, including e-commerce, pensions, and even by the HMRC for income tax payments. In the personal financial management space, open banking is shifting towards supporting real-time financial decisions, with insights based on transaction data to recommend credit cards and provide payday advances.
While open banking continues to expand and gain users, challenges such as data privacy concerns and changing payment behaviors need to be addressed to make it appealing to a broader audience. Building trust through clear communication about data privacy and security, demonstrating the tangible benefits of open banking, and providing incentives that align with consumer expectations are crucial for further adoption. By focusing on strategies such as ensuring value exchange, demonstrating security measures, and offering comparable loyalty rewards, open banking can become a mainstream financial solution that offers enhanced value to all users.
