Monday, 13 January, marked seven years since the EU’s Second Payment Services Directive (PSD2) came into force, mandating the sharing of bank account data between banks and financial institutions at the consumer’s request. PSD2 shifted ownership of banking data from banks to consumers, giving them control over how and when their information is used.
Through APIs enabling account-to-account payments (A2A), variable recurring payments (VRPs), and personalised insights open banking has delivered notable benefits. However, its full potential remains unrealised due to challenges like consumer stickiness, insufficient merchant incentives, and regulatory gaps.
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Since launching in 2018, open banking has grown rapidly, with active users surpassing 10 million in June 2024, and reaching 12.1 million by December. Concurrently, user engagement has deepened; Open Banking Ltd reported an increase in average monthly transactions per user from 2.59 in December 2022 to 3.11 by December 2024, totalling 224 million payments in 2024. This suggests that users’ trust in the nascent system is increasing, and that open banking capabilities are becoming more integrated into mainstream payments channels.
GlobalData 2024 Financial Services Consumer Survey
The growth of open banking payments in the UK can be attributed to consumer preferences aligning with the benefits offered by the technology. GlobalData’s 2024 Financial Services Consumer Survey found that 47% of UK consumers prioritise speed and simplicity in peer-to-peer transfers, while 18% value swift receipt of funds. Open banking technology delivers on both fronts, particularly in cross-border transactions, offering faster, more efficient alternative to traditional banks transfers. Additionally, 52% of UK consumers use real-time payments for P2P transfers and 35% for goods and services, with only 19% unaware of real-time payments, suggesting awareness is high among UK consumers. Given the role of familiarity in driving adoption, open-banking-powered A2A transfers are well-positioned for further growth as real-time payments gain traction among UK consumers.
The benefits of VRPs
The future of open banking extends far beyond A2A transfers, with permissions for variable recurring payments (VPRs) set to gain popularity. VRPs enable seamless ‘sweeping’, allowing consumers to automatically transfer funds between accounts, for instance, moving surplus funds into higher-interest savings accounts, and back to current accounts as needed. This process simplifies saving, particularly as central bank rates are expected to remain higher than previously forecast. VRPs can also streamline use-based subscriptions such as utility bills, by enabling precise payments within pre-set parameters, offering greater control and security than direct debit or card-on-file systems.
Despite the potential of VPRs and other open banking innovations, uptake has lagged due to inertia and limited merchant adoption. Many consumers tend to stick to familiar, payment, tools like mobile wallets and contactless cards, which are convenient, fast, and widely accepted. Similarly, merchant reluctance to embrace open banking payments reduces consumer access and willingness to switch. Yet, merchants who adopt open banking stand to benefit from faster settlement times, reduced chargebacks, and lower fees, enabling competitive pricing or higher profitability. However, to drive adoption, open banking services must demonstrate clear, irresistible advantages over traditional methods, a benchmark they have yet to meet.
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By GlobalDataPSD3 slated for 2027
The anticipated arrival of PSD3 in 2027, may provide the necessary push for open banking to challenge traditional payment channels. By levelling the playing field between banks and non-banks, PSD3 aims to grant fintechs access to core payment systems, empowering them to develop compelling products that attract consumers and merchants alike. Heightened competition could also spur incumbents to launch their own open banking-powered services. Enhanced regulation may finally unlock the mainstream potential of open banking, positioning it as a transformative force in the payments sector.
Jonathan Vaughan Burleigh is an associate analyst, banking and payments, GlobalData
