Seven million users and counting, that’s the current state of play for the UK’s open banking usage. To me, it’s a good number, one that shows that data sharing and new payment products can continue gaining traction among consumers and businesses. However, it’s not a number that says: “our work here is done,” even though many analysts put the UK well ahead of other locations.

For example, in the UK, Forrester predicts the combined adoption of account information services and payment initiation services will rise from 15% of online adults in 2022 to 44% in 2027, which is a compound annual growth rate of 23%.

The UK to Lead Open Banking

The UK will have the largest number of open banking users in 2027, while Sweden will have the highest penetration rate.

The UK now needs to work towards the next seven million users and the continued growth after that to achieve these aggressive targets. However, we are in a bit of a holding pattern as we digest the newest announcement from the Joint Regulatory Oversight Committee on April 17.

In short, the JROC recommendations set out five steps toward promoting and regulating open banking:

1. encouraging better availability and performance of open banking;
2. mitigating fraud and financial crime;
3. protecting consumers if they are victimized by fraud;
4. improving information flows to third-party providers and end users; and,
5. promoting additional services with variable recurring payments (VRPs) to be used as a pilot.

Open Banking Around The World 🌎

Open Banking was born with simple aims in mind: to give customers control over their data and to encourage competition, transparency and FinTech innovation in the banking sector. Since then, Open Banking has evolved into a common banking practice… pic.twitter.com/9VKrVXV2qx

— Dr. Reinis TUMOVS | BSc, BAcc, LLM, MFin, PhD. (@RTumovs) May 11, 2023

This is all welcome news. As we consider the JROC recommendations, we see challenges to overcome and actions to take that will keep open banking top of mind with consumers and scale its usage to greater numbers and more valuable applications. We see three action points coming to the forefront:

Advanced Regulations

The UK is both market-driven and regulatory-centered. The EU has a similar market-driven/regulatory approach as we saw with the 2017 adoption of the General Data Protection Regulations (GDPR) and version two of the Payments Services Directive (PSD2).

As a point of clarity here, under the GDPR, consumers must give specific consent to companies who want to access their personal data for advertising or promotional activities.

PSD2 is built for financial data access. It requires consumer consent for payment service providers to access and retain personal data. PSD2 set the stage for data-sharing protocols. It wasn’t just about data privacy, as is the perception. It set the ground rules for how companies on the continent could effectively use data to serve consumers better while protecting consumer privacy.

In the UK, a similar directive is now being considered by Data Protection and Digital Information (No. 2). It was debated in mid-April, sent to a committee, and will return before the House of Commons by mid-June.

The explanatory notes for this bill alone are 130 pages and take a big cut at data usage, privacy, and research projects. But, the most important part of it concerns open banking and the open frameworks beyond.

Yes, like the EU regulations that focus on consumer protection, this bill will extend data privacy protections. And, like the GDPR, it will set the ground rules for companies that use data to service, not harass their customers.

I like what Michelle Donelan, the Secretary of State for Science, Innovation and Technology, had to say: “Trusted and secure digital verification services will enable smoother and cheaper transactions. 'Smart Data' schemes across the economy will ensure everyone benefits from lower prices with trusted, innovative services like those in Open Banking."

Secure the API Economy

Open banking is founded on secure communications through APIs. The products and services using these APIs are the intersection of the consumer, their data and the data permissions they extend to third parties. As such, they are ground zero for the next seven million open banking users and need to be secured much more effectively than they are right now.

We can improve on this in the UK. As it currently stands, the UK has standards in place for open banking APIs. However, they are guidelines and were only mandated for the largest banks. These standards provide a good foundation for companies designing and maintaining their own APIs and services. But, track record and reputation are what we must go by right now in terms of securing APIs. We need to do better to close any potential fraud gaps for APIs if open banking is to continue its journey toward the subsequent seven million users.

Rohit Chopra took to the stage to discuss imminent rules that could spark a competitive open banking revolution.#FintechNexusUSA2023#nexus2023#OpenBankinghttps://t.co/JjsmjsgQQ7

— Fintech Nexus (@Fintechnexus) May 11, 2023

Expand B2B Payments And Applications

After we secure the API economy, I believe more B2B applications could drive greater adoption. There are a few use cases that come to mind immediately. For instance, banks can assess the creditworthiness of small business customers in real-time through an open banking API instead of waiting weeks for a decision.

A company with multiple bank accounts could consolidate them into a digital dashboard rather than manually downloading them from each account into an Excel sheet. Invoices can be created, paid and reconciled using open banking data instead of spreadsheets or manual invoice processing. With open finance, a world of embedded finance awaits; innovators will lead the market and think about creating new investments, savings and lending products.

We have made progress on the B2B front. According to Open Banking Limited (OBL), approximately 750,000 small to medium-sized enterprises (SMEs) currently use open banking products. Its data shows adoption by businesses is higher than consumers, with a 16% penetration rate versus 11%.

It contends that B2B usage is driven by small businesses using cloud accounting software that uses open banking to import transaction data. It seems to me that we don’t need to limit B2B applications to small businesses. We could increase overall usage and drive the industry at large toward more secure data usage and payments.

And finally, let’s promote open banking to businesses and consumers alike. When I look at the nine banks that have combined forces in the OBL consortium, I see no shortage of marketing and promotional funds available for banks to shout from the rooftops on open banking.

Let’s be more aggressive about promoting applications like variable recurring payments that can help consumers during the cost-of-living crisis. Better collaboration between banks, FinTechs, and businesses can create more open banking products and services for consumers.

For example, applications like payment initiation services bypass credit card usage with more secure direct debits. Account aggregation services put all consumer accounts in one easy-to-manage dashboard. And, open banking data can afford businesses and consumers access to lending platforms with competitive rates and fee structures.

We’re on the cusp of something special here in the UK as we navigate our open banking journey. Let’s be smart about regulations, secure current processes, and work harder to expand B2B applications. While reviewing the JROC directives and supporting the ambitious roadmap presented, we can still move toward the next seven million consumers.

And, in the process, we can build a future that makes open banking a set of products and services that equips the next seven million for financial wellness, security and agility.