Open Banking Payments: The Next Big Step?

Open banking payments are fast, seamless and totally secure. They offer consumers and merchants advantages such as greater security, financial control and flexibility, as well as significant savings on card fees.

Yet, despite its benefits, open banking payments require more momentum to realize their full potential. Our recent study, conducted in collaboration with Pay with Bank Transfer by American Express, highlights the vast potential for open banking adoption in the UK market. 

Understanding Open Banking

This innovative model aims to democratize financial data, making aggregated and transactional information from financial institutions and their users more accessible. This exchange of data is designed to foster competition among financial intermediaries, leading to services and products that align more closely with user needs.

It's important to note that sharing this data between financial institutions and users requires authorization, ensuring that individuals maintain control over their personal information.

Purpose, Benefits of Open Banking

Why was open banking created? Its primary benefit is user empowerment. As true owners of their financial information, users can leverage this solution to centralize information about their bank and savings accounts, mortgages, and credit cards — even if the products are from different banks — into one unified system.

Consumer Preferences, Payment Options

It's a well-accepted fact in the payments industry that consumers appreciate having multiple payment options. In the UK, while credit and debit cards still reign supreme (66%), digital wallets and Buy Now, Pay Later (BNPL) options are also highly popular.

Among these familiar methods, open banking payments are becoming a significant contender, offering benefits to both merchants and consumers. However, our research shows that 24% of consumers have concerns about adopting new online payment methods like open banking. They prefer to wait for these methods to become more widespread before trying or adopting them. This hesitation stems from unfamiliarity with the system, highlighting the need for consumer education about this payment method and its benefits.

The survey also reveals that 41% of respondents would be interested in using open banking payments if they were perceived as a safer way to pay. Security concerns remain one of the biggest barriers to adoption, as many consumers are unaware of the robust safety measures in place for this payment method.

Security and Transparency 

Open banking payments currently offered in the market stand out for their secure, bank-initiated authentication process, which does not involve sharing payment credentials — a significant advantage over traditional card payments.

According to our survey, 86% of respondents want access to their bank balance information before making a purchase. Such transparency allows consumers to make informed decisions and feel comfortable spending larger sums online. This tendency highlights consumers’ desire to be in control of their finances, from budget creation to finalizing their online transactions. 

Understandably, merchants are extremely vigilant when it comes to security, particularly on minimizing fraud. Open banking can, in fact, help reduce fraud for merchants, yet many sellers aren’t clear how. Pay with Bank Transfer is a highly secure, bank-initiated authentication.

Unlike card payments, no payment credentials are shared. When a customer makes a payment using open banking, they are always sent to the bank’s app to authenticate, usually with biometrics. 

In addition, working with a payment processor like Nuvei provides real-time fraud detection and scoring to stop transaction fraud before it can take place.
In recent years, the focus on enhancing consumer control and transparency has intensified, with open banking payments emerging as a key enabler of this transformation. 

A Better User Experience

Sixty-one percent of consumers are looking for a streamlined and convenient user experience when purchasing online. This emphasizes the relevance of ensuring that the payment journey is quick and completed in as few clicks as possible. 

Consumers are frustrated by the need to enter what they perceive as unnecessary details – such as card numbers – during the payment process. A complex checkout with too many steps can lead to mistrust and abandoned transactions. 

Open banking payments enable customers to bypass lengthy checkout journeys, while feeling secure in the knowledge that their payment details remain private and safe.

Current Usage, Future Potential

Currently, there are 7 million active open banking users in the UK, representing less than 10% of the population. Open banking payments are emerging as an efficient and secure payment method with great potential for both consumers and merchants. However, with only a small proportion of the UK population using this innovative system, broader adoption remains a challenge.

The solution lies in informing and educating consumers and businesses about the benefits of open banking payments. Bridging the unfamiliarity gap and addressing security concerns will not only give consumers more payment flexibility, but also provide new opportunities for merchants to streamline transactions, reduce costs, and improve the overall shopping experience.