How millions of consumers and businesses are using open banking

The proportion of small and medium-sized enterprises (SMEs) using open banking functionality is higher than that in the consumer market, and the gap is growing, research has found.

Open Banking Limited (OBL), which reported in February that seven million consumers and SMEs were using open banking products, has revealed that 16% of SMEs now use open banking, compared with 11% of consumers.

In its latest report, OBL said 75,000 SMEs already use open banking, many as part of their accounting software to import transaction data, and are also taking advantage of the ability to view more than one bank account in the same place, known as account information services (AIS). A total of 79% of SMEs are receiving real-time insights for cashflow and forecasting through these services.

In contrast, consumers are widely using payment initiation services (PIS), which allow them to move money. This can be to top up wallets or pay credit card bills.

The OBL said there were 68.2 million open banking payments in 2022, compared with 25.2 million in 2021, with month-on-month growth of 10%. It estimated that up to 11% of digitally enabled consumers and small businesses used open banking in March 2022. This figure has increased from 9-10% in March 2021.

Marion King, chair and trustee of OBL, said: “It is encouraging to see a continued and steady increase in the adoption of open banking products and services, particularly by the UK’s small firms, which are seeing tangible benefits from real-time business insights offered by open banking data.”

In 2018, UK banks were required to implement the Competition and Markets Authority (CMA) open banking regulations, which led to the development of application programming interfaces (APIs) in banking to give consumers more control over their accounts.

“It is encouraging to see a continued and steady increase in the adoption of open banking products and services, particularly by the UK’s small firms, which are seeing tangible benefits from real-time business insights offered by open banking data”

The end goal was to increase competition in a sector dominated by big financial services companies. Customer banking data is shared by the industry through APIs, with customer permission, enabling businesses to offer tailored products.

The next phase of open banking – known as open finance – will go much further. Open finance will see firms share data across more services, such as mortgages and loans, also via APIs, and offer products and services from external organisations.

King said the services being offered by open banking providers were expanding. “It is exciting to see the expansion of services in key areas such as borrowing and financial decision-making empowering people to make better informed choices about managing their money, which is crucial as we face an increased cost of living,” she said.

A report this week, from independent advocacy group Coalition for a Digital Economy (Coadec), described the UK open banking industry as being at a crossroads, with clear regulatory direction required if the UK open banking sector is to continue to grow.

In its report, Coadec said: “A multibillion-pound sector stands on the precipice of taking flight beyond payment account data to open up a new frontier of innovation and competition.

“Alternatively, the darling of the UK’s fintech ecosystem could stagnate, condemned to tread water and to not fulfil the promise of the past few years, with the best and brightest firms forced to temper their (and their investors’) expectations or upsticks across the channel.”