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The Autumn Statement can take open banking to the next level

To bring about the future of UK payments innovation a joined up roadmap is needed, writes Ben Ruffels, VP, Public Policy, Volt

Jeremy Hunt

Jeremy Hunt/HM Treasury

There was a lot to welcome — and for fintechs to chew over — in Chancellor Jeremy Hunt’s Autumn Statement last month. Accompanied by Joe Garner’s Future of Payments Review, it contained a commitment to unlocking open banking payments.

On the surface of things, quite a niche point in the Treasury’s economic update. But with an expanding share of UK economic activity taking place online, an important one. 

Being able to move money around the digital economy safely, rapidly and cost-effectively is a necessity for people and businesses. This is exactly what open banking payments do. 

Regulation created our vibrant open banking ecosystem, stoking the creation of products and services now used by tens of millions of British consumers. 

But it was mandated by UK competition authorities as a remedy to help address market concentration in retail banking. As our sector matures, what we now need is the stability of a long-term regulatory framework. 

This leaves open banking at a critical juncture. Fintechs have been crying out for clarity on what future regulation might look like. 

We also need to plot a course for a new generation of open banking payment services that works for both sides of our market — banks and fintechs — so the benefits flow to businesses and their customers as soon as possible. 

We were delighted to see open banking front and centre in the Garner Review, and welcomed HM Treasury’s confirmation in the Autumn Statement that it will legislate soon to provide the foundations of a future regulatory regime for our ecosystem. 

If our public authorities can build momentum behind these reform plans, fintechs will be encouraged to invest further in this payments infrastructure and deliver people and businesses a wider choice of payment services.  

Open Banking can challenge the card duopoly

The Garner Review rightly foresees an enhanced role for open banking in the future mix of UK retail payments. Visa and Mastercard have long dominated this part of the payments world and built formidable global businesses. But the technology powering them was imagined and first implemented in the 1950s.

We share Joe Garner's view that open banking payments are a front-runner to loosen the card schemes’ grip by offering merchants a viable digital alternative. 

Adoption by consumers and businesses is already increasing steadily. The first half of this year saw double the volume of open banking payments compared to the same period in 2022, and over 12 million of these payments were made in October 2023. 

It’s no wonder people are moving in this direction. Open banking payments are an inherently safe, convenient and rapid way for both parties to transact online. 

Paying this way, a person’s identity is verified securely, often using mobile phone biometrics. There is no risk of a customer inputting the details of a business they’re paying incorrectly, as this information is automatically pre-populated by the business’s open banking partner, protecting consumers from APP fraud. 

The money moves instantly from the customer’s bank account to the account of the business, over the UK’s Faster Payments Service payment rails, without their bank credentials being shared. And it’s more cost-effective for the business to be paid this way, compared to accepting card payments. A win-win for both sides of the transaction.

 Collaboration will help Open Banking flourish

As implied in the Autumn Statement and the Garner Review, we see collaboration between banks and fintechs becoming more important in the next stage of open banking’s growth, driving the new payment capabilities that will catapult open banking forward.

One area where collaboration could bring major benefits for businesses and their customers is Variable Recurring Payments, or VRPs. Currently, VRPs enable people to ‘sweep’ money between their different bank accounts — a helpful innovation powered by open banking. 

Unlock this potential with a clear plan to bring non-sweeping VRPs to market, and we move a step closer to building propositions that can truly rival the card and direct debit payment options that dominate this space. The renewed urgency that the Autumn Statement has given this issue is certainly positive. 

t’s also important that any future framework for open banking protects the foundations of the world-leading ecosystem we’ve built. 

The UK’s Joint Regulatory Oversight Committee – which will give an update on its plans for the future of open banking later this month – rightly observed in April 2023 that the UK’s regulatory-led free access model 'has been and remains pivotal to democratising access to data as well as to supporting innovation and competition'. This baseline should be retained, as we move into a more market-led phase of growth. 

Sustained payments success depends on regulatory clarity 

With sound regulatory foundations and a framework for industry collaboration in place, open banking will be in a position to bring instant account-to-account payments into the heart of the UK’s digital economy — an exciting prospect. 

In fact, the world of payments has rarely been as vibrant and exciting as it is now, or as complex. Alongside open banking, new public and private digital money is emerging, in the form of stablecoins and Central Bank Digital Currencies, and alternative payment methods like BNPL continue to grow in popularity. 

We now need a vision for UK payments — a key Garner Review proposal — so that all of these innovations, and the public policies surrounding them, develop in a joined-up way.  

A shared roadmap, supported by the government, regulators and financial sector, will help the UK’s payments landscape to evolve coherently, avoiding a siloing of payment methods, and fostering interoperability and partnerships. 

All of which will increase the likelihood of payments innovation delivering even more convenience, security and value for consumers and businesses.

If we get this next phase of reforms right, we can clear the path for further growth of open banking, and unleash the real-time payment services that British consumers and businesses expect – and need – to manage our increasingly digital financial lives.

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