Until last year, the rate at which Open Banking had been embraced by consumers and businesses in markets across the world was consistent. However, more time is needed for Open Banking to reach its full potential, which is expected from a new technology that businesses and consumers weren’t fully aware of.
But it is now reasonable to suggest that the speed of adoption will accelerate significantly in the near future. The number of Open Banking users in the UK has reached 2 million, doubling over the course of 2020, with the COVID-19 pandemic cited as accelerating the digital shift for both consumers and businesses. As a result, the value of the global Open Banking market is predicted to grow at a rate of more than 24% when compounded over the next five years, reaching USD 43.15 billion by 2026, according to Allied Market Research.
The primary source of growth to date has been in the development and use of Account Information Services (AIS). These enable third party service providers (TPPs) to access customers’ current accounts and data, with that person’s consent, in order to offer businesses the ability to provide tailored services and personalised product decisions.
From here in, the primary driver of Open Banking is likely to be Payment Initiation Services (PIS). These services allow bank customers to access their accounts directly in order to authorise payments, to make online purchases, pay a bill, or transfer money between bank accounts, using secure payments systems such as UK Faster Payments or a SEPA transfer. It allows customers to pay from the account of their choice, using familiar and trusted banking authentication methods. Adoption of these convenient, low cost and easy-to-use payment services could create a new momentum, leading to Open Banking’s own Big Bang moment.
Win, win, win for businesses
One reason that an explosion in PIS use may be imminent is that the economic uncertainty created by the COVID-19 pandemic has caused businesses to look at places where they could cut costs. And by using PIS, businesses can reduce transaction fees by up to 90% versus credit and debit cards, given the lower operational processes required to make transactions.
This is particularly appealing for those businesses in sectors which have been particularly hard hit, such as travel and retail, where being able to save potentially millions a year on transaction fees could be the difference between surviving and thriving.
A real impact, in real-time
Through PIS, businesses can also receive the funds instantly, due to no settlement period. For smaller businesses in particular, who often have to wait for up to 3-5 business days for credit or debit card payments to come through, instantly available funds could allow bills to be paid, investments to be made and opportunities to be seized.
As well as being instant and cost-effective, PIS also provides a more secure payment method than any other available, because businesses have no requirement to hold consumers’ payment details. For merchants, the risk of fraudulent payments and chargebacks is significantly reduced, alleviating a huge concern given that every transaction counts in the current climate and fraud is becoming more sophisticated.
Keeping up with the consumers
Businesses using PIS can also meet the increasing expectations of consumers, with millions turning to digital services during the lockdown period. Recent research from eToro and the Center for Business and Economic Research (CEBR) reveals that almost three quarters (72%) of consumers across nine European markets think digital technologies have made their lives easier; 65% would welcome more digitalisation in financial services; and 61% would like to see more digitalisation in retail.
And PIS can provide businesses with this higher level of user experience, making it easier for customers to complete payments and keeping them engaged in the retailers’ environment. When an individual initiates a purchase, they are taken smoothly across to their bank’s secure online portal before being swiftly directed back onto the vendor’s website for confirmation of their purchase and a copy of the receipt. Such a frictionless process is the holy grail for those working in ecommerce.
PIS offers a win-win for businesses and their customers, and there is every reason to expect both sides to embrace convenient, fast, reliable, and secure PIS over the next few years – creating an Open Banking Big Bang. This, in turn will, stimulate further development of more services by TPPs and fintechs, generating a virtuous cycle of development and adoption; and ensuring that the energy created by this explosion in the use of PIS and other Open Banking services will help to sustain economic activity and more innovation in financial services for many years to come.
About Leon Muis
Leon Muis is Chief Business Officer at Yolt Technology Services, Yolt’s B2B arm bringing the power of Open Banking to business throughout Europe through a single and secure API. Having worked as a consultant for Retail Banks worldwide, Leon joined ING in 2011 before moving to Yolt in April 2017. Leon has led YTS since it launched to market in 2019. YTS was the first third-party provider to make a successful open banking call and connect to all nine main UK banks. Today, YTS are the top Open Banking API provider in Europe by coverage, handling over 26 million successful API calls a week.
About Yolt Technology Services
Yolt Technology Services unlocks its Open Banking expertise to other organisations through a single and secure API - building, managing, and maintaining AIS and PIS connections for top financial institutions and ambitious tech businesses. Yolt Technology Services is available throughout Europe and makes on average 26 million API calls each week, passing the 1 billion API call milestone in October 2020. Yolt Technology Services’ was recently recognised as the Alt-Fi Open Banking Provider of the Year in their 2020 awards.
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