Open Banking in 2022 – Milestones and Use Cases

As well as an increase in the number of open banking users, the volume of API calls reached a record 1 billion in May alone. What does this mean for open banking uptake? It shows just how much open banking activity is being generated and indicates that more people are learning about, and taking advantage of, these services. The more banks, financial institutions, and fintechs offer services, the more this number is likely to increase.

In 2020, the number of open banking users rose steadily from 1 million to 2 million over 10 months. More recently, however, usage has accelerated. In just four months (November 2021 to February 2022), the number of open banking users grew from 4 million to 5 million. There was a particular spike in the UK in January, when many people used open banking services for HMRC tax payment, showcasing just one use case for the technology.

By May 2022, the figure had reached 6 million – a huge leap in an even shorter space of time.

To put it another way, 10 to 11% of digitally-enabled consumers now actively use some form of open banking service — a 3 to 4% increase compared to March 2021.

From November 2021 to March of this year, 21.1 million open banking transactions occurred – a significant jump when compared to the 6.1 million open banking payments made in the same period one year before. These figures suggest that the number of transactions is increasing by around 10% every month and there’s no indication that it’ll slow down anytime soon.

We can see that open banking uptake is growing but what are businesses actually using this technology for?

Well, it seems that much of the open banking market focuses on five main areas:

• Accounting

• Banking

• Business finance management

• SME lending

• Treasury management

Interestingly, management consulting company, McKinsey, found that 30% of open banking licence holders in the UK are infrastructure providers. These providers help other businesses apply open banking to launch products and services that improve financial decision-making, offer better loans and borrowing options, and expand payment options for consumers.

With infrastructure providers enabling other businesses to make the most of open banking, it makes sense that we’re seeing such a rapid uptake. Alongside benefiting consumers, it’s clear that open banking can help banks and financial institutions gain and support new customers by partnering with fintech companies.

As for the products and services being provided, it appears that the most popular fintech apps centre around:

• Personal finance management: apps such as Revolut (UK), N26 (Germany), and Mint (USA), allow customers to quickly and easily manage bills, budgets, and track transactions.

• Savings: as well as enabling users to monitor their spending, many apps, including Cleo (USA), offer a platform for saving.

• Digital banking: for instance, Chime (USA), a mobile-only bank.

• Investment: platforms such as Robinhood (USA).

• Blockchain and crypto: apps such as Coinbase (USA), a crypto wallet, and Nuri (Germany) – a bank account with an integrated crypto wallet.

As mentioned above, open banking can be incredibly lucrative for banks and financial institutions, as well as assisting consumers.

Financial inclusion

Almost two billion people have no way to make payments other than cash – a challenging situation in an increasingly digital world, and one that needs to be addressed.

Whether it’s financial management platforms or loans for those with a low income or poor credit history, open banking can make financial services more accessible for the underbanked. This is particularly true of providing digital services to countries with rural populations where there is no access to physical bank branches.

Faster onboarding

Open banking APIs enable third parties to confirm identities, check transaction histories and harness other financial information quickly. This leads to smoother onboarding and a higher customer satisfaction rate – a win-win situation for businesses.

Lower transaction costs

Receiving costs via credit or debit card often incurs high fees – an obstacle for SMEs and charities that cannot afford those transaction costs. Because open banking payments, are much cheaper to receive, they can really help small businesses and charitable organisations.

Fraud reduction

In the UK, unauthorised payment fraud cost consumers around £574.2 million in 2020. This rather unsettling statistic is due to the fact that fraudsters can use long card and CVV numbers to make payments – and unfortunately it’s a similar story around the world.

One way of minimising the risk of financial fraud, however, is to integrate open banking payments. They don’t require a customer’s card details and use 2FA and encryption, making them a far more secure payment method.

It’s clear to see that open banking is moving towards widespread adoption across the globe. And with the wealth of benefits it offers both financial institutions and customers, it’s not hard to see why so many people are keen to integrate. If adoption continues at the rate it has been, we can expect to see an incredible 8 million users by the end of 2022.

Open banking has made financial management quicker and more straightforward when dealing with single payments – but what’s the next step? It seems that the latest challenge to overcome is the question of VRPs (Variable Recurring Payments). VRPs enable customers to connect an authorised third party with their bank account so they can set up regular payments (such as for household bills) on the customer’s behalf each month. This would offer a more transparent method than current alternatives, such as Direct Debits.

As well as VRP developments, there’s also the need to standardise open banking APIs. The European Banking Authority (EBA) recognises that introducing a single API standard across Europe will involve compliance costs but has also made it clear that the results would be worth it. Standardisation would also allow more European companies to integrate open banking.

From there, the natural progression would be a move towards some form of global standards. As of yet, we don’t know quite what this will look like but the prospect of worldwide open banking adoption is certainly exciting. Watch this space!

Open Banking API Platform

Would you like to learn more about integrating open banking APIs? Take a look at our Open Banking API Platform or contact the team with any questions.