Five open banking insights on its fifth anniversary

This January marks the five-year anniversary of the Second Payment Services Directive (PSD2), which made open banking a regulatory requirement in the UK  - a.k.a five years of open banking payment technology being available in the UK. Eventually, we believe that open banking will be a typical way for most of us to pay and get paid but, until that point, five years of faster, more secure payments is something worth celebrating.

A lot has happened in the world of open banking since it launched, so we’ve put together our top five insights and newsworthy moments.

Before you read on - if you need an open banking refresher then we’ve got you covered with this guide. 

1. There are now over 6.5 million active users of open banking products

Open banking adoption in the UK has grown year-on-year, with it being estimated that at least 10% of digitally-enabled consumers now use at least one type of open banking service. 2022 in particular saw some significant growth, partly thanks to HMRC successfully trialling ‘Pay by bank account’ for a portion of tax services. They estimated that the trial saved around £500,000 in bank charges in an 18-month period, leading them to keep and extend open banking as a payment choice across a total of 43 different tax categories. 

2. Open banking authentication has improved over time 

Back in 2018 the UK’s financial regulator, the Financial Conduct Authority (FCA) brought a ‘90-day’ rule into force. The rule meant that all aggregator apps had to ask their customers to re-authenticate any open banking payments every 90 days, and if the customer missed it or forgot then they would be disconnected. 

Unsurprisingly, this rule led to high disconnection rates and after consultation with key members of the open banking industry, the FCA officially changed the rule in September 2022. Now, customers are only required to authenticate their accounts when setting up for the first time, and then at 90-day intervals, they will be asked a simple ‘yes or no’ to continue. 

3. GoCardless has launched three open-banking-powered features and a payment intelligence product

Since 2019, we’ve launched Instant Bank Pay, Verified Mandates and most recently, Instant Bank Pay for Variable Recurring Payments. Whilst it might sound as though we’re just talking about our own accomplishments, these launches represent a shift in the payment landscape. For a long time, cards had dominated the payment scene leaving businesses to just accept the high transaction fees that come with them. But that’s no longer the case, with open banking-powered features like Instant Bank Pay averaging 54% cheaper transaction fees compared to cards and driving a more convenient payer experience.

Real-world examples of this from GoCardless customers include:

• Cuckoo, the UK’s first challenger internet service provider, used Instant Bank Pay to successfully collect two-thirds of their failed payments and overall reduced the time it took their team to chase and collect a failed payment from 21 days to less than seven days.

• Gravity Active Entertainment, an international chain of trampoline and leisure parks, used Instant Bank Pay to reduce their on-site customer sign-up time by 55%.

• Nude, a money management app for first-time buyers, saw payment contributions increase by 25% in the first three months of implementing Instant Bank Pay.

But open banking isn’t just about getting paid faster, it also makes payments more secure with added verification, helping to reduce the number of fraudulent or failed payments. That’s why it’s part of the newly launched GoCardless Protect+ - a payment intelligence tool that uses open banking and machine learning to stop high-risk payers from completing your checkout. 

4. UK business leaders are ready to invest further in open banking

Findings from the Demistying Payer Experience Report, which we created in partnership with YouGov, found that nearly a third of UK businesses are planning to invest in open banking over the next two years. With businesses citing that their three key drivers for any form of infrastructure investment are keeping up with market trends, enabling new services and products and reducing fraud, it’s clear that open banking’s benefits are starting to be recognised more widely outside of the financial sector.

5. Open banking is entering into a new phase 

Upon open banking’s launch in the UK, the Competition and Markets Authority (CMA) created the Open Banking Implementation Entity (OBIE) to put a progress roadmap in place and ensure the top banks were following any mandated requirements. 2023 started with the big news that on the fifth anniversary of open banking, the roadmap was complete. Whilst this marks the end of the OBIE, banks still have continuing obligations under the CMA’s Retail Banking Order. Plus, a new Joint Regulatory Oversight Committee (JROC) is now reviewing the future vision for open banking in the UK and forming recommendations for the design of the future entity. 

It’s an exciting new milestone that could mean new, mandated open banking enhancements or product builds. In particular, we hope the next entity uses the learnings from phase one to focus on the areas where we could significantly improve the customer experience.

We’re already looking forward to the sixth anniversary as we know that there’s so much more potential to be unlocked, and we can’t wait to be in the thick of it and find new ways to offer our customers even better ways to get paid and to protect their revenue.