Open Banking Payments: Charting the Road to Success

A brief look into how open banking is changing the payments landscape and enhancing user experience by providing real-time data plus enhanced innovation

Photo of Tom Pope, VP of Payments & Platforms at Tink

The UK fintech industry is evolving at an astounding rate. Currently home to over 1,600 fintechs, we are witnessing an increasingly sophisticated fintech ecosystem. Indeed, the Confederation of British Industry (CBI) has estimated the fintech industry could yield an additional £32 billion for the UK economy by 2030.

For this to become a reality, the sector needs to maintain the momentum fuelled by consumer demand for innovation in financial services. One such area which is ripe for additional disruption is payments.

Recent research that we carried out amongst UK consumers found that new payment options are being embraced — with 76% saying they are pleased with having more choices in how to pay. And there is little tolerance for poor user experience, with 88% saying that they are prepared to abandon a transaction if faced with friction when making a payment online. 

Looking at the business landscape, while it’s true that payments have come a long way in the past decade, it’s still the case that settlement times are slow, fraud rates are an ongoing concern and too often, friction is encountered. 

Today’s customers want to know that any payments they make are secure, fast and reliable. They also expect them to be fully embedded in their user journey. And while there are examples of outstanding payment experiences, such as Apple Pay or Amazon one-click for e-commerce, there are also sub-par experiences ripe for innovation and disruption. 

So what comes next, and how can Europe’s financial executives ensure they’re keeping pace with rising expectations for frictionless and safe payments? The answer lies in open banking.

Enhancing user experiences with open banking payments

We’re at a tipping point in the financial services industry, where executives across Europe are waking up to the transformative power of open banking payments. Most recently, the UK reached the milestone of 6 million open banking users, with the Open Banking Implementation Entity (OBIE) revealing that open banking payments are growing 500% year-on-year. As they move to the mainstream, the industry must come together to increase awareness of the many benefits of open banking payments. 

The latest research on the uptake of open banking amongst Europe’s financial executives highlighted what people believe are the top benefits for merchants. These include enabling increased payment security and fraud mitigation (74%), running on the newest generation of payment rails with instant transfers (70%) and lowering costs (67%). 

There are already some areas, such as account top-ups or bill payments, where open banking payments are becoming mainstream — great news for the industry and consumers. But with competition more fierce than ever in the payments space, there remain areas which need to be addressed if we are to achieve a truly embedded experience for payments. 

Overcoming barriers to adoption

There is still work to be done to ensure open banking payments realise their true potential. A lack of consumer awareness is cited as an issue — with Tink’s research showing that 75% of European financial executives believe awareness is critical if open banking payments are adopted more widely. And while our consumer research showed that over one in ten 18-34-year-olds are already using ‘pay by bank’ transfers to pay for utilities, that still leaves a significant majority who are not yet taking advantage of open banking-powered payment methods.

Meanwhile, topping the list of barriers preventing the uptake of payment initiation services (PIS) was the concern amongst 30% of European executives about the limited adoption of instant payment rails across Europe. Finally, suboptimal user experience is another critical barrier to open banking payment adoption. 

The good news is that some use cases have flourished, such as peer-to-peer transactions and bill or invoice payments. However, there are also examples of use cases still finding their feet — for example, in-store commerce payments and account top-ups. 

The power of partnerships for innovation

For open banking payments to reach their full potential, we need a two-pronged approach — increasing consumer awareness of the benefits of open banking payments and the broader adoption of instant payment rails. 

Thankfully, this is being addressed with the European Commission’s proposal to mandate the adoption of instant payment rails. But we believe the Commission must also act to ensure that access to these rails is free for consumers. This will guarantee that we have the proper infrastructure in place to continue to innovate, all whilst encouraging consumer uptake of open banking payments.

To achieve this, a collaboration between financial institutions and fintechs is key. These strategic partnerships will help financial institutions to innovate around APIs — removing friction and improving the end-user experience. This is essential to driving mass-market consumer adoption of open banking payments over the next few years and creating even more inclusive, streamlined, fast-settlement and low-cost payment solutions. inclusive, streamlined, fast-settlement, low-cost payments solutions.

About the Author: Tom Pope is the Vice President of Payments and Platforms at Tink.