Connect with us
Our website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.

BANKING

How Open Banking will change the banking industry in the next 10 years

How Open Banking will change the banking industry in the next 10 years 45

How Open Banking will change the banking industry in the next 10 years 46By James Hickman, CCO of Ecospend.

In 2016, the Competition and Markets Authority (CMA) published a report on the UK’s retail banking sector which found that newer banks were struggling to access consumers and grow. Their solution to this centered around the promotion and implementation of Open Banking, a concept that is set to change the sector by enabling banking solutions that are quicker, cheaper and provide customers with a better overall banking experience.

In the six years since, Open Banking has grown considerably. This growth is now gathering pace, with Juniper Research forecasting market growth of 2,800% between 2021 and 2026. Indeed, Open Banking solutions have the potential to revolutionise the banking industry over the next decade in three major ways.

Creating a competitive marketplace

Open Banking’s ability to transform the sector over the next decade can be largely attributed to the regulatory changes made as part of the 2018 Payment Services Directive (PSD2). One of the key developments that resulted from the directive was that third-parties were now able to access customer data which, until now, had almost exclusively been owned and controlled by the incumbent banks. As the name suggests, Open Banking providers rely on banks ‘opening up’ data so they can use it to provide a wide array of services, from payment initiation services to customised financial advice.

By being forced to share this data, the existing, larger financial institutions lose the competitive advantage they had over third parties and new competitors, including mobile banks. What we are already seeing, and what we will continue to see in the coming years, is that less established businesses will be able to disrupt the siloed relationship that banks previously had with their customers, offering cheaper, and better services that they would not have been able to provide prior to PSD2.

We are already seeing businesses take advantage of this. In the four years leading up to 2022, more than 300 Open Banking firms were registered in the UK, with this number set to grow exponentially. As a knock-on effect, the price of services offered through Open Banking and designed to help people better manage their finances are being driven down as competition to offer the best service and retain customers intensifies.

Reducing payment costs

One of the other key areas where Open Banking is already having a huge impact is payment services, where innovative technologies and streamlined processes are already saving businesses time and money. Open Banking enabled account-to-account payment solutions are allowing money to flow directly from one account to another, dramatically reducing costs for business owners (in 2022, UK retailers will pay around £5bn in transaction fees) and increasing the convenience of making payments for customers.

In 2020, the rapid evolution of the account-to-account payments space was highlighted when HMRC implemented Ecospend’s payment initiations across all of their tax regimes. While this was the first time the Government had introduced Open Banking payment services, we expect that over the next decade, this will very much become the norm across government departments.

Improving customer experience

However, increasing time- and cost-effectiveness for businesses is only one side of the coin when it comes to the benefits of Open Banking solutions, which are also transforming the banking experience for consumers. Whereas at one point every transaction would have involved card details and lengthy verification procedures, we are now moving towards a world where payments can be made directly between accounts, without the need for intermediaries or excessive customer input.

As well as facilitating payments that are more straightforward, consumers will be given a greater range of options as to how they pay, allowing payments to be tailored to a customers’ needs. Instant online payments and refunds can be offered alongside ‘pay by link’ services and QR code payments, with many more innovative solutions likely to appear in the coming years. Beyond convenience, Open Banking facilitates services include budgeting, personal finance and money management products, putting customers in control of their personal finances and providing them with the tools needed to make the most out of the money they have. With 90% of customers reporting that open banking apps and products are easy to use and set up, we are likely to see strong uptake of similar services over the next decade, stimulating growth in the market and giving consumers an even broader array of personal finance tools.

Why we are ready for Open Banking

While Open Banking is clearly going to dramatically alter how we use banks in the digital age, the change will be accelerated by one group of people in particular. This group is of course Generation Z, the demographic cohort that have grown up in a digital world and are not only the most comfortable with new banking technology, but also have the skills to embrace it as it appears and evolves. With 42% of Gen Z already using open banking, it is only a matter of time before the technology becomes ubiquitous, supporting the industry as it moves into a more convenient, cheaper and increasingly innovative era.

Continue Reading