16-04-2025
Open Banking Sees Slow, But Steady Progress
Dr. Ozan Ozerk is the founder of OpenPayd . He is a serial entrepreneur with a vested interest in several digital ventures. getty
A quote, often attributed to Lao Tzu, states, 'Nature does not hurry, yet everything is accomplished.' For all those involved in open banking, these may feel like cold words of comfort, because progress has been painfully slow at times. It kicked off in earnest in 2018, when the Europeans, heralding the launch of a new set of open banking standards, tried to sell the idea to the public.
'I am convinced that the innovative and competitive EU payments market fostered by the PSD2 [Payments Service Directive] is a great opportunity for all,' said Valdis Dombrovskis, the vice president for Financial Stability, Financial Services and Capital Markets Union in the EU, in a 2019 statement. The U.K. was a little more muted while rolling out its open banking standards: 'This is a new capability that can make the boring and anxiety-inducing task of managing money simpler, quicker and more convenient,' stated Faith Reynolds, consumer representative for the Open Banking Implementation Entity (OBIE).
The reaction? The banks, worried about the work it entailed, decried it a failure from the start, whipping up consumer fear and leading to headlines such as ''Open Banking' revolution will leave account holders at the mercy of 'hackers and thieves', banks warn.'' Opinion pieces followed suit, such as the simply titled 'Open banking? I think I'll be keeping my door shut.'
Underlying this was a simple problem: For an industry where security is paramount, where consumers had been taught for decades to keep all financial information safe and secure, the term 'open banking' was an anathema. And this was against a backdrop of serious data breaches in 2017. Remember Yahoo announcing all 3 billion of its user accounts had been hacked? What could potentially empower consumers was terrifying them. At its heart, open banking would always be a hard sell.
And yet, the benefits were clear to those of us in finance—a world where consumers could switch loans, mortgages and bank accounts at the click of a button. The doors open to possibilities where consumers could see all of their accounts, financing, credit history and more in one app. A place where loan applications could be completed in seconds, where consumers could control their own data. The list goes on.
Since these rollouts, we've seen a transformation that's happened way slower than anyone would have wanted, but likely as fast as any of us could have expected. Why Is It Taking So Long?
In the U.K. last year, open banking hit over 10 million users. By 2020, the EU had surpassed 12 million users and was projected to hit almost 64 million by 2024. Nonetheless, I believe we have finally reached a tipping point in consumer acceptance, technical stability and a competent regulatory landscape in both the U.K. and EU.
Firstly, it's only by seeing the benefits (and feeling confident their data is safe) that consumers will ever come to accept the step-change in opening up their financial details. Today, millions of users allow accounting software to access their bank accounts, and it's fair to say no one laments the days of line-by-line data entry. It's now a far smaller jump for consumers to accept further integration, such as your accounting software passing on—with permission—your financial details to a loan provider on the basis of a rich data file on which instant decisions can be made.
Secondly, it was inevitable it would take time because while consumers stood to gain, open banking opens a whole new layer of competition to every branch of the traditional banking business. Not only that, but changes to legacy systems are expensive and time-consuming for the major financial players.
Thirdly, regulatory changes were needed. The U.K. has led the way in clearing one of the last hurdles with its Data (Use and Access) Bill in October 2024. The bill extends the practices of open banking to other industries such as telecoms, insurance, pensions, energy, etc., heralding a new era of open data. This is significant not simply for consumers but in opening up the potential of cross-industry solutions. This means technological solutions can recoup their costs with potential application to multiple industries, all of which encourage investment and competition.
Fourthly, in all of this, you may have noticed there's been no mention of the U.S. That's because it has taken an astonishing seven years since Europe and the U.K. announced their technical standards for the U.S. to appoint a body, the Financial Data Exchange (FDX), to set up the same, as the Consumer Financial Protection Bureau finally did earlier this year. Without the might of U.S. tech firms and investment, adoption has no doubt been slower than it might have been otherwise, but now we know that's about to change. It's All Coming Together
Overall, I'm bullish on the growth of open banking. There may be no fireworks or great stampede right now, but to quote another great mind, Vincent Van Gogh, 'For the great doesn't happen through impulse alone, and is a succession of little things that are brought together.' And those small things have finally come together.
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