Voice of the Industry

Open Banking – the future of UK retail payments

Wednesday 17 January 2024 10:11 CET | Editor: Vlad Macovei | Voice of the industry

Jack Wilson, VP at TrueLayer, explores the potential of Open Banking to transform UK payments through cost-effective, instant retail experiences.


Open Banking – the future of UK retail payments


The rise of Open Banking has been a steady force in UK payments for years. Since arriving in 2017 on the back of PSD2 regulation, Open Banking payments have shown continuous growth. Currently, more than four million customers make these payments on a monthly basis, generating 11.4 million transactions. And there are no signs of that progress slowing down.

But to sustain that success, Open Banking will need to continue its push into retail payments. The opportunity is certainly there; as card fees have risen by up to 600% since 2014, Open Banking payments can provide a better experience for consumers at a reduced cost. With the UK government preparing its Future of Payments Review, now is the time for Open Banking payments to make another leap forward.

But why are these types of payments essential to creating a world-leading retail payments ecosystem? This article will outline just a few of the benefits Open Banking provides, showing that it can — and should — help shape the future of UK retail payments.

Why is Open Banking the future of retail payments?

It’s important to remember why it was introduced in the first place. In 2016, the European Parliament introduced PSD2 legislation — and Open Banking with it — to generate competition and innovation in the banking sector.

To make that vision a reality, the regulation sought to increase access to both financial data and payments. It lets approved businesses, known as third-party providers (TPPs), gather information and initiate payments from customers’ bank accounts with their permission. 

While that led to a wave of innovation in data aggregation, payments quickly emerged as an even more promising use case. Compared to existing methods like cards, they offered numerous benefits:

  • Reduced costs: Open Banking initiates payments directly from a customer’s bank account, bypassing card networks. As a result, there are no card processing costs. 

  • Faster experiences: when used in conjunction with real-time payment rails, Open Banking payments settle immediately, whereas the process can take days for cards. This means instant experiences for consumers, such as faster refunds.

  • Higher conversion: between expired details, manual data entry, and loss or theft, card payments are vulnerable to errors that can frustrate consumers and affect merchants’ conversion rates. By contrast, Open Banking auto-populates consumers’ details directly from their bank, mitigating these risks and leading to higher conversion.

  • Improved security: online card payments use strong customer authentication (SCA) to confirm that a transaction is legitimate. However, this process can add friction for consumers, leading to drop-off. Open Banking payments integrate SCA more smoothly and don’t share user credentials, keeping customers safe without impacting their overall experience.

What can Open Banking payments do for retail?

Open Banking payments can be used to complete several transactions, including:

  • Paying a friend: this can be done through Open Banking with services like VibePay, offering an alternative to manual bank transfers and pay-me links.

  • Settling bills: traditional methods include direct debit and card-on-file transactions, but Open Banking is evolving to support variable recurring payments (VRPs) to set up regular payments for utility bills and subscriptions.

  • Buying goods and services: car retailers, ticketing companies, and many other online businesses already accept ‘Pay by Bank’ alternatives powered by Open Banking payments.

  • Saving and investing: wealth management services powered by Open Banking, such as Chip and Nutmeg, allow customers to automatically ‘sweep’ variable amounts from a customer’s current account to a savings account at repeating intervals.

  • Repaying credit: providing alternatives to direct debit and manual bank transfer, VRPs can help your customers automate credit repayments, simplifying the payment flow compared to direct debit payments.

  • Signing up for a service: industries like pharmaceuticals often need to verify a shopper’s identity before a purchase. Products like Signup+ allow businesses to verify customers using bank-sourced data, providing a higher converting user journey at a lower cost compared to cards.

What challenges remain?

While Open Banking has come a long way over the past half-decade, it still has plenty of ground to cover. Before it can take control of the retail payments landscape, providers and the industry at large need to answer a few lingering questions.

What consumer protections are involved?

Regulators and industry bodies have long discussed adding a more robust consumer protection framework to Open Banking payments. However, these transactions do already benefit from quite a few preventative measures. 

Improved security measures prevent fraud and unauthorised transactions. Like any electronic transaction, Open Banking payments also fall under the Payment Service Regulations’ (PSR) consumer protection rules. 

How do recurring payments factor in?

With VRPs, Open Banking has moved beyond one-time payments into recurring transactions. But recurring commercial payments from consumers to businesses remain strictly voluntary. 

However, businesses are quickly acting on the promise of these so-called commercial VRPs. Banks like NatWest are voluntarily enabling use cases outside of sweeping, while government and regulatory bodies are also developing frameworks that should help drive adoption. 

Who’s going to make all this happen?

Currently, the Open Banking Implementation Entity (OBIE) oversees industry standards and monitors the development of key infrastructure. However, the organisation is reaching the end of its remit, and a more permanent body may replace it. 

With this change comes the opportunity to bring Open Banking further into retail payments. Providers, banks, merchants, and consumers have all been eager to make that happen, and under a new standards body, all should be empowered to partner to further accelerate the development of Open Banking payments.

More than six years after it came to the UK, Open Banking has enabled a host of new financial innovations. Now it’s poised to go further, securing its place as the country’s primary retail payment method. 

This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.

About Jack Wilson

Jack Wilson is VP of Policy and Research at TrueLayer, leading the firm’s engagement with UK and EU regulators and authorities. He is a former policy adviser at the FCA, where he helped create their approach to regulating firms under the new Payment Services Directive (PSD2).



About TrueLayer

TrueLayer is Europe’s leading Open Banking payments network. We power smarter, safer, and faster online payments by combining real-time bank payments with financial and identity data. Businesses big and small use our products to onboard new users, accept money and make payouts in seconds, and at scale. 

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Keywords: Open Banking, Open Banking payments, retail banking, report
Categories: Banking & Fintech
Companies: TrueLayer
Countries: United Kingdom
This article is part of category

Banking & Fintech


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