Time, Investment and Creative Thinking Needed to Accelerate UK and EU Open Banking Adoption

Five years after open banking became a regulatory requirement, the U.K. now claims 7 million active users.

That figure, representing less than 20% of the total number of bank account holders in the U.K., poses the question: What can be done to reach critical mass in the U.K. and the EU, and what lessons from those markets may inform open banking’s future in the U.S.?

In a recent conversation with PYMNTS’ Karen Webster, Chris Jameson, managing director, head of GTS product management EMEA at Bank of America (BofA) and The Bank of London (TBOL) Chief Markets Officer Shaunt Sarkissian said time, investment and legislation will be required for open banking in the U.K. and EU to really ignite.

Pointing out the key issues, TBOL’s Sarkissian said the slow rate of adoption in the U.K. has been the result of a lack of creativity on the part of FinTechs firms, many of which expected to leverage the access they had to consumer financial data to “create a million different business models that don’t exist today.”

But traditional banks were already offering many of those solutions, including financial management tools and the ability to have consolidated account views, Sarkissian explained, leading consumers who had planned to ditch traditional banks to U-turn.

For BofA’s Jameson, however, the slow rate of adoption hasn’t come as a surprise, especially considering the multiple payment options like credit cards and paper checks that still hold strong positions in the local market.

But even if the government mandate has not triggered a massive uptake of the scheme, Jameson said it has sparked a big wave of innovation in the financial services sector, enabling banking infrastructure providers that didn’t exist before, while increasing customer choice and lowering the cost of payments.

He pointed to “Pay by Bank,” for instance, as an important application of open banking that is facilitating faster and more secure payment flows to large corporate customers. The solution, which BofA launched in the U.K. last year in partnership with FinTech firm Banked, enables eCommerce shoppers to make real-time payments directly from their bank account without the need for credit or debit card details.

Per Jameson, the feature will drive open banking adoption as it gains momentum in Europe, where more than 60% of consumers are increasingly embracing digital shopping and about 70% of consumers connect to the web primarily via their mobile phones.

Sarkissian added that transaction use cases that sidestep major card networks like Visa and Mastercard can also make a difference in driving higher usage and adoption levels in the U.K. and EU markets.

In fact, the ability of clients such as large corporates, money service businesses and foreign exchange companies to initiate transactions to TBOL through an open banking connection is one way business-to-business (B2B) use cases will evolve. “Transactions in general will be much more of a killer app [for open banking],” Sarkissian said.

Leveraging Public-Private Partnerships

Breaking the open banking impasse will require “a combination of public and private,” Jameson said, with private entities on one hand building capabilities tailored to client needs while public entities develop legislation to drive adoption.

Banking institutions, which have an upper hand when it comes to client relationships and a strong understanding of the regulatory environment, will also have a critical role to play, Jameson added.

This could mean leveraging the positive network effects banking groups and associations like The Clearing House (TCH) and Early Warning Services (EWS) — a U.S.-based, bank-owned digital payments platform which operates the Zelle P2P network — have as an effective way to push new solutions out quickly, Sarkissian noted.

“Why did Zelle have such critical mass and takeoff in the United States? It’s because it was run by [EWS] and was adopted very quickly by all the banks [which] had that power of incumbency to roll it out very quickly,” Sarkissian explained.

And those groups can act as standard body advocates to governments, Sarkissian further noted, adding that working together with regulators is especially paramount in the U.S. to prevent ending up with a “convoluted set of rules that nobody can interpret and understand.”

Still on the U.S. landscape, Sarkissian said open banking growth and adoption will not “mimic Europe and will see more hesitancy and resistance from domestic banks. But a collaboration between TCH and EWS, for example, could help build some products that then drive regulation,” he opined.

On-Time vs Real-time

In terms of open banking lessons from the U.K. and EU that the U.S. can benefit from, Jameson said it’s critical to pay attention to clients drivers, be it consumer or corporates, and work hand in hand with them to understand specific use cases that are relevant to them.

For some clients that might mean an important need for real-time information to make timely decisions and ensure instant transaction visibility. Others might not need speed and may place a greater preference on on-time payments. “Understanding what’s on-time versus real-time and how open banking can facilitate that will be key,” Jameson noted.

Looking ahead, Sarkissian said that card payments will remain dominant in the consumer payment landscape. And while the biggest use cases on the consumer side will be an evolution of Pay by Bank, it’ll be “much more transaction-heavy on the corporate side.”

Ultimately, “customers will dictate your level of success,” Sarkissian said, which is why checks that still serve a business need have persisted for more than four centuries.

And as he told Webster, “I don’t think open banking will be the death knell of traditional banking that people thought 10 years ago.”