3 open banking trends that will change financial services

Nick Tucker
Nick Tucker, Head of Financial Services
23 May 2022
UI boxes moving upwards

Open banking has come a long way in a relatively short time. Brought into force with the passage of PSD2 in 2018, open banking has helped countless financial services firms develop innovative data and payments products. Today, it touches every corner of finance, from personal finance to wealth management and more. 

And it shows little signs of slowing down. In the UK, there are more than 5 million open banking users, with adoption rates accelerating. It's forecast that more than 28 million Europeans will use open banking services by the end of 2022. In fact, the European open banking market reached a $6 billion valuation in 2020; by 2030, it’s set to pass $48 billion.

With great growth comes great opportunity, so how will open banking change to meet its potential? Here are three trends that I think will shape the sector in the coming years.

1. Providers will pursue a global platform

Currently, open banking has lots of national and regional players. Each knows their market very well, and can offer deep insights and solutions in those specific regions. But as yet, none can provide the global coverage that multinational merchants are looking for.

Navigating multiple payment systems remains a big challenge for global merchants. Customer preference, regulation, technical standards and market maturity all make it difficult to offer a one-size-fits-all solution. 

And the more ‘local’ you go, the more complex things become. Segmentation costs money, both at the front end in tailoring experiences to payers’ needs, and the back end to ensure payments are processed and reconciled efficiently. This gets even harder when a transaction is going across borders or jurisdictions. Stablecoins and digital currencies are helping with this, but it’s still an issue open banking is grappling with.

So how can providers cater to the needs of both multinational merchants and end users across the globe? As instant payment schemes and APIs continue to develop globally, the most established players will look to provide a worldwide platform. This will unlock even more opportunities for multinational merchants.

2. VRPs = open banking 2.0

When we talk about payments, we tend to get hung up on the customer experience. The truth is, consumers don’t want to ‘experience’ a payment. As long as they trust it’s secure, they don’t need to see it taking place. And anything that reduces friction is also good for the merchant. 

That’s why Variable Recurring Payments (VRPs) will be the next big thing in open banking. With VRPs, a consumer gives a merchant permission to transfer funds of variable amounts between accounts that they own. This is also known as sweeping. 

Once a VRP is set, the customer doesn’t need to think about the payment again. There’s no risk of late payments, so consumers get peace of mind while merchants can get a better handle on their cash flow and administration. This allows businesses to focus on what matters most: providing a better experience for their customers.

In the UK, the largest nine banks have now been mandated to provide VRPs by July 2022. It’s particularly useful for intelligent savings products, as it automatically transfers disposable income to a savings account without the cost of direct debit. Consumers can also benefit from VRP-powered smart overdrafts, which automatically sweep funds from an account with a positive balance to another that is overdrawn.

But the big step change is still to come. At TrueLayer, we’ve already developed VRPs that extend beyond sweeping, allowing customers to manage everything from subscriptions to utility bills and more. And in the future, companies could even expand their offerings to allow simple, one-click payments of variable amounts. As more banks move beyond sweeping, expect consumers to embrace the convenience of VRP for themselves.

3. Upgrading onboarding

Open banking doesn’t just make recurring payments easier. Speed matters throughout the customer experience, including at the initial sign-up stage. 

Traditionally, onboarding has been laborious for customers and businesses alike. That goes double for sectors with significant compliance obligations, such as trading and iGaming. A prospect may need to supply multiple forms of ID and proof of income to create their account. All this adds friction, and with it the potential that the prospect loses interest before they finish signing up. 

By leveraging customer data, open banking can make this process much smoother. It allows merchants to collect necessary data on behalf of their customer, from multiple sources if necessary. This means less admin for the consumer, and less chance that mistakes will creep in from manual data entry. Without the risk of human error, payments are far less likely to fail, creating a better experience.

Fast onboarding is particularly important to companies that want to appeal to under 35s, who are less forgiving of their digital experiences than those with memories of analogue days. As trading apps continue to attract significant volumes of young retail investors, using open banking to turbocharge the sign up process can provide a competitive advantage.

Trading apps don’t just need to meet customer expectations, though. In a sector where minutes and even seconds can make all the difference, a slow onboarding process can prevent prospects from capitalising on a timely investment. TrueLayer research found that 60% of investors would quit a sign up process that took more than 10 minutes, while half of all respondents would do the same if they were redirected outside the app. The bottom line: sluggish onboarding ultimately leads to customer churn.

Innovative players such as Freetrade and Trading 212 are already turning to open banking to give them an edge with onboarding. With a new breed of investor on the rise, expect more to follow.

Conclusion

Open banking has much to offer both consumers and the businesses. The former already expects a convenient experience across all their transactions, whether they’re paying off a mortgage or investing in crypto. Merchants that fail to offer open banking will struggle to provide those experiences, while third party innovators will race to partner those that do. 

We won’t have to wait long to see this play out. It’s clear that when consumers and businesses get a taste of open banking, they don’t go back. At the end of 2021, Europe had more than 500 open banking providers processing tens of billions of dollars in payments.

It’s clear that open banking is here to stay. Businesses that embrace its potential early stand to gain the most. 

Download our retail investing report to learn how open banking is helping trading apps build better investor experiences.

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