When will open banking reach critical mass?

Ruwani Hewa, Product and Propositions Director at Nuapay

It’s clear to see that momentum is building behind open banking. By the end of 2021, almost 27 million open banking payments had been made in the UK alone. This marks an increase of more than 500% in 12 months. It’s no surprise then, that the open banking market is predicted to be worth $416 billion in the next three years.

Evidently, merchants are taking note of open banking’s potential. At Nuapay, we recently surveyed 752 UK payments decision-makers within merchant businesses, to understand perceptions of open banking. One in four respondents (25%) predicted that open banking would be the most popular payment method among their customers in the next five years, above digital wallets (20%) and Buy-Now-Pay-Later (BNPL) (15%).

Respondents believed the greatest benefits of open banking were simpler reconciliation (33%), improved payer user experience (31%), consolidated reporting (31%), and improved access to loans (30%).

While this research indicates that open banking adoption is reaching new heights, it’s important to evaluate the factors influencing uptake of the technology to understand what needs to be done to achieve true mass adoption.

 

How close is open banking to mass adoption?

There is a range of factors that have contributed to open banking’s current momentum. Global lockdowns helped to accelerate the digitisation of financial services and the uptake of eCommerce. This, in turn, led consumers to become more open to new methods of contact-free payment including open banking.

As instances of payments fraud have risen, consumers have also become increasingly vigilant about security, seeking out the safest ways to pay. Indeed, the reduction of fraud risk (34%) was listed as one of the main benefits of open banking for consumers, in our recent survey. By eliminating the need to enter payment card details, open banking payments help to remove vulnerability.

Despite the steps that have been made towards achieving mass adoption, barriers remain. 43% of the respondents to Nuapay’s survey said that they haven’t yet realised the full potential of open banking, with 19% saying they’d only realised a small percentage of what’s possible.

As with any new payments technology, it will take time for consumers to become familiar with open banking and for the technology to reach the same level of popularity that other, traditional methods enjoy.

When asked what their customers’ attitudes to new payment methods are, survey respondents were almost equally split. While half (49%) said their customers are always interested from the start, 48% said that they can take a while to become familiar with new methods, needing extensive education ahead of uptake.

It’s clear that more needs to be done to encourage the use of open banking payments and in turn, for the technology’s full benefits to be realised by merchants and consumers alike.

 

How can merchants raise awareness of open banking?

There are several ways in which merchants can increase awareness of open banking.

Firstly, merchants should tap into and promote the biggest consumer benefits, including instant refunds and pay-outs. Respondents to our survey also named greater control (41%), and improved customer experience/convenience (37%), as primary benefits for consumers.

33% of merchants also agreed that better positioning of open banking payments is needed at the checkout. Merchants should work with their payments providers to ensure that an option for paying via open banking is included alongside other methods and that it is well sign-posted.

Finally, merchants should be prepared to educate consumers about what open banking payments entails. 32% of respondents stipulated that an awareness and education programme among consumers is needed. While collective, industry-wide effort will ensure such a programme is truly a success, merchants can support this by giving a brief explanation of the required steps at the checkout or in marketing materials.

Open banking technology has made incredible strides forwards over the last few years, and we have never been closer to mass adoption. To ensure open banking continues to gain interest at its current momentum, merchants must work closely with their payments providers to ensure they’re making the most of the technology’s potential. As long as merchants work to raise awareness of open banking, it’s clear to see that open banking will reach mass consumer adoption, benefiting merchants and consumers globally.

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