The biggest open banking benefits for your customers

Andy Tweddle, Payments writer
29 Apr 2022
Two faces overlapping with a progress bar

As open banking develops in the UK and beyond, we often get asked: “Will consumers use open banking?”

In short, they already are. While businesses are still exploring and building their open banking experiences, customer uptake is growing rapidly. As of January 2022, there are over 5 million open banking users in the UK, with 3.9 million payments made using open banking technology in the same month.

But why are consumers readily adopting open banking-powered experiences? And how can you persuade those who haven’t yet used it to try it out? This article explores open banking’s biggest benefits for your customers.

If you want to know more about the business benefits of open banking, check out our article on the topic.

What exactly is open banking?

Open banking gives consumers the right to determine who has access to their financial data. Previously, banks had total control over this information. While open banking still feels new, it began in 2015 ​with the proposal of PSD2.

In the UK and the EU, open banking uses technology called application programming interfaces (APIs). They enable approved, regulated companies — known as third party providers (TPPs) — to connect to banks and fetch financial data or make payments on behalf of customers. TPPs can be either:

  • Account information service providers (AISP): these TPPs can access read-only financial information and offer relevant services

  • Payment initiation service providers (PISP): these TPPs can also initiate payments with a customer’s approval

Both types of TPP power many different open banking-powered products and features. In the world of financial services, we’ve seen data-driven budgeting tools, smarter customer onboarding for investment apps, and customer-friendly affordability checks. In iGaming, casinos and sports betting brands have been able to onboard customers much faster and protect vulnerable players. And open banking is even emerging in ecommerce, with brands offering an alternative payment method to credit and debit cards.

Here are some of the biggest customer benefits we’ve seen come out of an ever-growing list of open banking solutions:

Eight consumer benefits of open banking

1. Give your customers their entire financial picture in one place

Open banking lets consumers access ‘account aggregation’, where a provider compiles data from multiple bank accounts within a single view. As the average consumer in the UK has 2.8 bank accounts, knowing what is happening across these accounts gives a customer a complete perspective on their financial health. From this unified view, brands like Revolut can analyse a user’s current accounts and recommend the best credit cards, loans and overdrafts for their individual needs.

2. Budget and save with smarter insights

Off the back of account aggregation, apps like Chip and Plum can analyse data to recommend when and where to make small savings that don’t disrupt a customer’s day-to-day spending. Over time, that can add up to a healthy pot of savings. Apps can then recommend where to put those savings to maximise returns through investments or interest.

3. Verify your customer’s bank information quickly and easily

When a customer signs up to a new service like an online betting provider or investment app, they often need to verify their account details. It’s an important part of the onboarding process, designed to protect both consumers and businesses.

Before open banking, verification was a slow, error-prone and manual process. With open banking, however, customers can confirm account ownership in seconds using fingerprint or facial recognition technology on their phone. It takes seconds, and removes the likelihood of them inputting the wrong information.

4. Let customers pay online instantly

Open banking has created a brand new payment method, enabling consumers to pay for products and services online. While most customers are used to paying with debit or credit cards, these are prone to failing (anywhere between 5 and 15% of the time).

Open banking payments — which are effectively instant bank transfers — fail much less frequently and settle instantly. With high-ticket items like cars, the ability to pay (and get paid) instantly makes the buying experience a lot less nerve-wracking. No more waiting to find out if the payment has gone to the right place.

5. Allow customers to move money where it needs to be instantly when investing or betting online

When it comes to smart investing apps like Freetrade or Nutmeg, or any number of online betting providers, waiting for funds to appear in your account is a major limitation.

For example, if a customer sees a perfect investment opportunity, the moment to invest may pass quickly, and they need to be able to react immediately to maximise the potential returns. In fact, almost a quarter of investors have missed out on an investment opportunity because funds didn’t appear in their account quickly enough.

With open banking, customers can top up their accounts instantly and get real-time payment confirmation.

6. Get better online payment security

Strong customer authentication (SCA) — the part of the payment journey where the customer takes an extra step to authenticate the payment — has helped reduce fraud. But it has been implemented inconsistently when it comes to card payments, leading to lengthy payment experiences.

On the other hand, open banking payments were built with SCA baked in. For consumers, the authentication process involves a simple redirection to their bank app, where they confirm the transaction and are returned to complete the purchase.

7. Have complete control over who can access and use your data

One of the main aims of the original open banking legislation was to give customers better control over their financial information. Powered by secure APIs, open banking always guarantees:

  • Nobody gets access to the customer’s login details or banking passwords

  • The customer controls who sees their banking information

  • The customer controls the level of third party access to their account

  • Companies can't take any payments without a customer’s authorisation

Not only has open banking created a range of powerful new products and services, but it has also made sure the control lies with the customer.

8. Coming soon: sweep money between your accounts with ease

In July 2021, the UK Competition and Markets Authority (CMA) announced that the biggest banks in the UK would build new APIs to enable something called variable recurring payments (VRP), which facilitate ‘sweeping’ payments. This allows consumers to easily transfer money between their own accounts at different banks.

With VRP, the intelligent savings and smart budgeting features mentioned above will become more powerful. Apps will be able to move money between accounts instantly instead of relying on direct debit, which takes days to settle.

Banks are still building and testing VRP, but TrueLayer became the first organisation to deliver VRP in April 2022.

Are there downsides to open banking for consumers?

As we’ve mentioned, the rules surrounding open banking are designed to give customers control over who can access their financial data and how. But those same rules sometimes created a significant pain for consumers: they needed to confirm access for every open banking service and with each of their connected banks, every 90 days, using strong customer authentication (providing two or more different security credentials). This is referred to as the ‘90-day rule’.

This rule was causing even highly engaged open banking users to drop off. Thankfully, in November 2021, the Financial Conduct Authority (FCA), the UK’s financial regulator, announced changes to the rules. Now, customers only need to provide their AISP with reconfirmation that they consent to having their data accessed. In the real world, this takes less than a minute and keeps the convenience of using the service. The rule began rolling out from 26 March 2022.

The refunds functionality of open banking, known as ‘reverse payments’, is also limited. While it does technically enable refunds, reverse payments have to be authorised by an individual in your business, meaning it’s impossible for them to be instant. That’s why we built our own solution at TrueLayer, meaning you can collect open banking payments and still offer simple, instant refunds.

Read the comprehensive guide to open banking

Open banking benefits both consumers and businesses. Find out more about open banking, how it works, important regulations, and global uptake in our comprehensive guide to open banking.

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