Open banking will continue its exponential rise in the UK in 2022

Open banking has accelerated fintech growth, allowing consumers and small businesses to connect their bank accounts with authorised third parties in a way that was unimaginable not so long ago. As it goes from strength to strength in the UK, and as we look to what the future might hold, we can expect open banking to continue bringing significant benefits to the businesses that embrace it, and more as the technology develops.

As increasing numbers of non-bank businesses, like retailers, adopt open banking technology as part of their business strategies, we expect a rise in new and innovative products entering the market. It’s undoubtedly an exciting time for open banking and I anticipate that, as user numbers grow in 2022, this technology will evolve beyond our expectations.

OBIE will be an energy boost for open banking growth

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, and the region can’t afford to 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, and 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.

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Variable recurring payments will come into full effect

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, are expensive, slow and have a painful, mainly paper-based process today. This is 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 double

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.

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Final thoughts

Open banking has been integral to improving financial inclusion in the UK and will continue to do so in 2022. By making financial services more accessible and easier to use, more people than ever before can have full oversight of their finances. The value of this must not be overlooked. Enabling greater awareness and understanding of personal finance can reduce debt and drive economic growth through small businesses for years to come.

I believe without doubt that the future of open banking is indeed a bright one. Once the UK breaks free from the Payment Services Derivative 2 (PSD2) at some levels with a more relaxed approach, we can then focus on the frictions that are barriers to open banking adoption and how to continue to boost 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. Banks and businesses will then need to strike while the iron is hot and make open banking a central part of their strategy in order to truly capitalise on growth, marketing and other benefits this clever technology can bring.

Written by Andries Smit, CEO and founder of Upside

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