Insight Type: Thought Leadership

Like many organisations, many of the UK’s charities and social enterprises have been hit hard by the pandemic. Nearly two years of on-off lockdowns hit face-to-face fundraising events – a key source of revenue for many charities – and cash donations. Some struggled to retain volunteers, while others faced an increase in demand for their services.

Recent research from The Charities Commission reported that 60% of charities in England and Wales saw a loss of income, and one in four charities with incomes of less than £10k paused their activities completely during the first lockdown.

As charities look towards the post-Covid fundraising landscape, our new publication ‘The charities guide to growth through open banking’, highlights the opportunities offered by open banking payment solutions.

In the guide, we set out how third sector organisations can:

Challenging perceptions

One of the barriers to introducing any new payment or donation method is the perception that it will be expensive and disruptive to day-to-day processes and tasks.

However, the reality is that most open banking applications are free to use and can be up and running within a few hours. All that’s required is an internet-ready device and an internet connection.

How can open banking help cut costs?

Traditionally, a significant portion of donation revenue goes towards individual transaction fees and annual service hosting costs. According to the business website, Startups.co.uk, each card transaction takes a typical fee of between 1-3% meaning processing costs can quickly add up.

In contrast, the cost of receiving payments via open banking tends to be far lower compared with credit or debit cards, online or in-person. This means more revenue going directly to their funds.

There is also often near-instant settlement and access to any money coming in. Thanks to the UK’s retail payments system, Faster Payments, transactions are typically completed within a few seconds meaning donations are on account and available typically more quickly than card-based payments.

What open banking can offer your supporters

Open banking can also present more flexible opportunities to donate, including micro-donations, where donors can opt to round up transaction amounts and give permission for the surplus (within agreed limits) to be transferred to their chosen charity.

The pandemic has also seen an increase in the use of QR codes, and using a QR code on a leaflet, magazine or billboard means a charity’s donation journey can start anywhere, without the need for specialist apps or a point-of-sale machine.

There are some additional benefits of using open banking too.  

Lack of middleman cuts costs and drives donations up

According to the charity platform JustGiving, it has found that, with no middleman, it is seeing savings of 50%, as well as the displacement of more expensive payment options, such as mobile wallets.

And the ability to donate direct – with the knowledge that all the donated funds will be going direct to the supporter’s chosen cause – has, in some instances, led to an increase in donations as well as cost savings.

The average transaction value is almost twice the amount of a regular donation. We feel it’s an indicator people will choose the open banking option when making large donations, for security and fraud reasons.

Oliver Shaw-Latimer, Director of Global Fintech, JustGiving

Shaw-Latimer concluded: “We underline open banking as our preferred [payment] method. It’s quicker and cheaper, it’s mobile-centric, and the flow is smooth. Ultimately, once you’ve picked your bank, you’re set.”

JustGiving is one of the world’s most well-known and trusted platforms for online giving. It helps people raise money for the charities and people they care about.

Since its launch in 2000, the platform has helped raise over £4.4bn for a variety of causes across the world.

A merchant of record, JustGiving works by processing a donation and aggregating funds to a recipient charity registered with the platform.

Before the advent of open banking, the majority of payments made via JustGiving were attributed to either PayPal, or a credit or debit card.

Today it is very much a mobile-first platform, with more than 85% of its donations made using a mobile phone or tablet.

And while 45% of traffic comes via traditional card payments, all other donations are made through digital wallets such as PayPal, Google or Apple Pay and now, crucially, open banking.

The cost of processing payments

In the past couple of years, JustGiving’s business model has changed radically. It is now run as a freemium platform, meaning when someone makes a donation, they are prompted to give a tip which goes directly towards the running of the service.

This ensures all donated funds go straight to the charity or cause, but comes at a cost risk to the platform.

And, like any merchant, JustGiving faces many challenges. These range from the cost of processing these payments, to cash flow and the ability to receive funds in a timely fashion (it still takes between three and four days), to the challenge of card fraud, and charge-back costs.

The open banking journey

Working with American Express’s Pay with Bank Transfer service, JustGiving began using open banking in Christmas 2019 and was the first merchant in the UK to use the technology.

Today open banking represents between 7%-8% of JustGiving’s share of wallet and its benefits are open to any organisation that chooses to use the platform for their charity. Oliver Shaw-Latimer, JustGiving’s Director of Global Fintech, said: “It is like open banking was made for charities.”

The benefits also help tackle a long list of historic challenges.

As money is pushed directly from a donor’s bank account, there is never an issue with insufficient funds. If the cash isn’t there, the payment can’t be made.

And when it comes to cashflow, it’s all taking place in real-time, at the same speed as if you were pushing through your banking app.

With no middleman, JustGiving is now seeing savings of 50%, as well as the displacement of more expensive payment options, such as mobile wallets.

Increased donations via open banking

Shaw-Latimer said: “The average transaction value is almost twice the amount of a regular donation. We feel it’s an indicator people will choose the open banking option when making large donations, for security and fraud reasons.

We underline open banking as our preferred method. It’s quicker and cheaper, it’s mobile-centric, and the flow is smooth. Ultimately, once you’ve picked your bank, you’re set.”

And JustGiving believes the sector can play a role in the wider adoption of open banking payments among consumers.

Shaw-Latimer said: “Open banking is a seismic change in payments, and it’s particularly applicable to the not-for-profit sector. Charities are always looking to reduce fraud and get money sooner. It’s almost like it’s been designed for them.

“And I think it will follow a similar trajectory to contactless. JustGiving is viewed as the R&D department of the sector so often leads the way. Once adopted, charities will start to pick it up.

“It’s recently been adopted by HMRC too, which indicates that adoption is going up and more people will be using it in the next 12 months. In addition, usage seems to suggest the open banking-enabled payments also lead to higher donations.”

For JustGiving, the future is very much about expanding open banking options, including plans to make it available to personal crowdfunding pages, and rolling it out to support charities across Europe.


Disclaimer: The content of this article is based on a discussion with JustGiving and the Open Banking Implementation Entity (OBIE) to enable JustGiving to provide details relating its service offering for information purposes only. For more information on the use of our website see: https://www.openbanking.org.uk/terms-conditions/.

If you are a third party provider (TPP) and you would like to share your open banking story with us, please email marketing@openbanking.org.uk.

In 2021 we witnessed significant growth in the adoption of open banking. We saw more participants, more end users, and certainly lots more publicity about the benefits it can bring.

But what will 2022 bring? We asked a few experts from across the open banking ecosystem to give us their predictions for what we believe will be another important year.

We share their thoughts below.

What will take open banking to its full potential in 2022?


HMRC team

“Effective collaboration to turn open banking data into services that are good to use and offer real value to customers and businesses. HMRC wants to be a big part of that, and we will be inviting interest in a number of open banking-related proofs of concept, such as splitting VAT at source.

Following the success of implementing payment initiation services, HMRC is also looking to maximise the benefits of open banking by exploring the application of account information services. We are keen to continue engagement with the OBIE, Pay.UK and the Bank of England to explore how we can further align our strategic activities.”

Oliver Shaw-Latimer, Head of Global Fintech, JustGiving

“From our perspective, it’s VRPs. It’s huge for us. Replacing Direct Debits eventually would be awesome, because it’s all tech and it’s more flexible – it’s instant payments. And recurrence is huge for the charity sector.

The other one is request-to-pay, which is sending out pre-invoiced requests for payments to our suppliers.

A lot of corporates hand over funds so we can disburse them to a wider network of charities. The ability to send them that ask, and have them respond to that ask via the open banking network kind of closes the loop, without having human steps in the processes. That’s a big one for us as well.”

Francis McGee – Consumer Representative, OBIE

“2022 will be a transitional year. The implementation phase will end, and we need new structures that make sure open banking continues to be done well for consumers, and run well for the ecosystem.  Let’s start 2022 by signing up to five principles to make that happen:

Fliss Berridge, Director and Co-Founder, Ordo

“Open banking has made life easier for businesses and consumers making and collecting single payments. The gap that’s left is to cover VRPs – regular repeated payments like monthly utility bills, and ad hoc repeated payments to the same retailer (in-person or online).

Open banking makes these payments much smarter, more convenient and efficient – a ‘smart Direct Debit’ if you like. VRPs can be set up in minutes rather than weeks, payment mandate parameters can be changed dynamically, right up to the point of irrevocable payment, meaning businesses and consumers can respond to life events in real time. Payment transfers are in real time, without long processes and paperwork.

Once open banking is used for our regular bills, we’ll wonder how we ever got by waiting.“

Hetal Popat, Open Banking Director, HSBC Group

“During 2022 I expect we will see extensions from open banking to wider passporting of data from and between financial institutions. This will unlock enormous value for both consumers and businesses, and will be a pro-competitive force in many other industries outside of financial services.

In parallel, the launch of VRPs will enable entirely new use cases to be fulfilled, embedding payments into wider customer journeys. The industry needs to co-ordinate in order to bring this to market, and the OBIE is well placed to facilitate this.”

Billy Helm, Marketing Executive, Ecospend

“2022 will be about consolidation and sustaining growth. Ecospend’s partnership with HMRC proves that, where there is consumer demand and an intuitive flow, the technology works well at scale. 

For open banking to reach its potential, consumer education will be vital. Also, we need to be realistic that this will not apply, in the short term at least, across every payment setting but will always be part of a mix.

It’s perfect when the consumer has to pay a bill or when fast delivery of a product isn’t a prerequisite. Aligning with the banks will be crucial to broaden the opportunities, especially to ensure industry-wide consistency around the settlement status of payments.”

Paul Lloyd, Co-founder and CMO, Snoop

“We need a broad set of scalable propositions that make people’s lives easier. HMRC’s adoption of open banking is a good example. PensionBee and Plaid partnering to turn a two-week pension contribution process into something instantaneous, while helping people save more easily for retirement is another.

And the work Snoop is doing to help make people better off is another example. With Snoop, every customer gets a unique money management experience based on their open banking data. Hyper-personalisation and the ability to connect people with relevant and personalised money insights at exactly the right time enables the app to be relevant, practical and useful in people’s everyday lives. We’re beginning to see just what a profound impact it can have.

The implementation of VRP will be another huge moment for open banking in the UK. This, combined with the scrapping of 90-day reauthentication, will play a significant part in unlocking open banking’s potential.”

Mark Chidley, Independent SME Representative, OBIE

“As the implementation phase of open banking concludes it is essential that the CMA and its fellow regulators (the Financial Conduct Authority, the Payment Systems Regulator and the Information Commissioner’s Office in particular), orchestrated by government, ensure that:

“We have been encouraged by the CMA’s 5 November open banking update to believe there is every chance that these important outcomes are delivered in the broad interests of the people and small businesses that open banking was always intended to benefit.

“We eagerly await the CMA’s consultation response and wider regulators’ statement in the early part of the new year.”

Nick Levine – Chartered Accountant and Fintech Consultant

“VRPs will play a key role. The benefits of smart overdrafts and intelligent savings are highly compelling and made possible with the introduction of sweeping via VRPs. I expect many people to engage with open banking for the first time through these tools and for trust and confidence to continue to increase.”

The OBIE is a unique repository of insight, expertise, and experience gained from having brought the open banking programme to life in the UK. We are pleased to make this thought leadership available to the broader open banking ecosystem, as part of a new, regular, ‘The OBIE Op-Ed’ series.

Contact press@openbanking.org.uk to request coverage of a specific topic.

The Government is currently consulting on proposed changes to competition and consumer policy with a view to delivering strong free markets, vigorous competition and high consumer standards. The consultation is largely focused on the role of the Competition and Markets Authority (CMA) and proposed powers for the regulator to tackle consumer rip-offs and bad business practices, but as Alan Ainsworth, Head of the Policy at the OBIE explains, it has wider implications for the fintech sector.

The Open Banking Implementation Entity (OBIE) was created to enable innovation, transparency and competition in the banking sector, ensuring better and easier access to new financial services providers and improved consumer outcomes. It provides the catalyst for nimble innovators (or “FinTechs”) to build products that suit customers’ individual needs and compete with large-scale traditional banking products. 

It’s why I welcome the publication of the Government’s consultation; Reforming Competition and Consumer Policy: driving growth and delivering competitive markets that work for consumers, which closes on October 1st 2021. The Government has framed it alongside their ‘Building Back Better’ messaging as consumer habits have changed during COVID-19, but it also recognises that well-functioning markets encourage competition to drive down prices, offer increased choice and new products, and maintain high consumer standards. It is vital that a rich competitive environment, envisaged in the consultation, flourishes in order for the benefits of open banking, open finance and smart data to be realised in the future. 

Chapter one of the consultation on competition policy details proposals to promote competition to drive enterprise, innovation, growth and productivity which is the key for the future success of open finance. However, the Government is largely advocating for competitive free markets, rightly so, without recognising the merit of pro-competition interventions by Government or regulators, which drove the success of the OBIE. In his independent report on competition policy, published in February 2021, John Penrose MP recognised open banking as a successful pro-competition intervention, now being copied around the world. He added that open banking “can be broadened to improve competition and consumer power in other industries” particularly as the economy becomes steadily more digital in future. 

Penrose is right. Three years on from the advent of open banking in the UK, its position in this field by all measures remains considerably strong. There are over 325 regulated providers made up of 234 third party providers and 91 account providers, with 114 regulated entities that have at least one proposition live with customers. Nearly 4 million UK consumers and businesses are using open banking enabled products. It provides a tangible example of successful competition policy and the importance to “strive to be better and go further”, as stated by BEIS Secretary Kwasi Kwarteng. Open banking has brought competition and consumer policies into the 21st century and created a competitive environment for open banking and open finance technology to flourish.  

It’s why the UK needs to evolve its competition regime further to encourage innovation and entrepreneurships, particularly in the digital space, because of the benefits it provides to consumers, businesses and, ultimately, UK PLCs. Processes aren’t perfect and they need to be sped up so that incumbents can’t slow things down by ‘lawyering-up’ and innovative solutions, such as data sharing, aren’t hindered. 

On data sharing specifically, the Government should require the CMA to develop an implementation plan for encouraging competition through the freeing-up of people’s data, if it is to achieve it’s ‘Global Britain’ priority and the UK’s open banking model is to continue to be copied around the world. The Australian model, for example, gives consumers the right to access not just all their financial data but also their utility, telecoms data and more. In short, Australia’s roadmap allows it to target open data, not just open banking or open finance which the UK is currently limited to under PSD2. 

This implementation plan won’t be out of scope for the CMA either. One of the regulator’s functions is to promote “stronger competition within the regulated industries (gas, electricity, water, aviation, rail, communications and health), co-operating with sector regulators” where open data will be the key. However, it will require a shift in mindset (and possibly pro-competition interventions) from Government and the CMA to speed up processes and encourage the freeing up of people’s data. If successful, the competition benefits will be reaped, unlocking opportunities and innovative solutions to open banking, open finance and smart data. 

The long-awaited requirement from the Competition and Markets Authority (CMA) mandating the UK’s nine largest banks to implement VRPs for Sweeping is going to transform payments and gives consumers and SME’s greater financial control, explains Imran Gulamhuseinwala OBE, Implementation Trustee at the Open Banking Implementation Entity. 

Contact press@openbanking.org.uk to request coverage of a specific topic.

While sweeping may not be a term that rolls off the tongue of the average consumer or small business, eventually it will become an everyday banking term that we all use regularly. Simply put, sweeping is the automatic transfer of money between a customer’s own accounts, such as moving excess funds into a separate savings account or using them to repay a loan or overdraft account to reduce the cost of borrowing. We like to think of it as the smarter and more consumer-friendly version of direct debit payments or card on file.

It is fair to say that the biggest transformations in the payments space have so far been regulatory-driven (think faster payments), and thanks to an OBIE-led consultation and subsequent recent decision by the CMA, the next big opportunity is for the market to build smarter payment solutions on the foundations laid down by regulation, namely Variable Recurring Payments (VRPs) for Sweeping.  

We’ve been awaiting this mandate since starting work on this in 2017. We are now on standby to implement this by the end of this year. We are especially delighted as this is the last major piece of functionality to be delivered under the Open Banking remedy. 

The CMA has mandated the CMA 9 (who have a combined market share of over 90% of the UK’s consumer and small business bank accounts) to implement VRPS for sweeping, and stated that: “Making effective provision for sweeping is an important element of the open banking remedy and it is important that sweeping provisions include the ability to move funds out of current accounts into accounts earning a higher rate of interest, and conversely enables customers to access alternative and cheaper sources of short-term credit.” 

VRPs are the plumbing to allow the automatic transfer of money between accounts using open banking.  The payments have to be within the permissions set by the customer (frequency of payment, max amount per payment, total maximum amount and end date of the permission).   

This means that VRPs can be used not only to power the development of Sweeping solutions but potentially also as a basis for smarter finance. This would mean no more subscription traps and provide a way for customers to stay in control in a future world of embedded smart payments. Imagine, if you will, washing machines that automatically reorder detergent or electric cars that charge when the price is low.

The Open Banking Implementation Entity (OBIE) has played a key role in helping Sweeping come to fruition and has long campaigned that VRP’s are the best way to deliver them. The OBIE’s mission is to drive competition, innovation and transparency in UK retail banking and under our stewardship position, we are now able to help set the foundation for smarter payments, enhance customer journeys and improve financial wellness for millions of consumers. 

Following the OBIE’s consultation phase on VRP and Sweeping earlier this year, the open banking implementation Trustee wrote to the CMA, sharing the consultation recommendations and formally recommending that the CMA 9 be mandated to implement VRP’s for sweeping.  

In making this ruling, the CMA has agreed with our view that Sweeping should be widely available to the market and that existing payment methods are unsuitable to deliver it effectively. Through the consultation, we found and highlighted that Sweeping unlocks significant value for consumers and SMEs, including: 

Sweeping is a public good, and we welcome the CMA’s decision to make it available to consumers. The solution uses a more secure and cost-effective payment alternative, massively improving the digital buying experience through increased convenience, transparency and security.  

The OBIE is a unique repository of insight, expertise, and experience gained from having brought the open banking programme to life in the UK. We are pleased to make this thought leadership available to the broader open banking ecosystem, as part of a new, regular, ‘The OBIE Op-Ed’ series.

Contact press@openbanking.org.uk to request coverage of a specific topic.

The role of digital identity in promoting access to financial services in the UK, by Fiona Hamilton, Head of Standards at the Open Banking Implementation Entity (OBIE).  

Digital identity has long been a policy puzzle which the UK, both Government and industry, have tried to piece together. The ability to determine an individual’s identity remotely and securely has arguably become ever more critical against a backdrop of rising digital fraud. But what exactly constitutes a ‘digital identity’, why is it important, and what efforts have already been made to establish the infrastructure, standards and common framework that underpins this policy objective? This blog sets out some of the reasons why adopting a consolidated approach to digital identity policy may provide the path forward to safer and more secure financial access for all UK citizens.  

Covid-19 Trends 

Covid-19 has brought a range of unprecedented challenges to our day-to-day lives, and while social distancing has driven change in all sectors of society, it has impacted the financial services sector and consumer retail banking in ways never seen before. A study by the consumer choice brand Which? found that more than 500 bank branches have closed in UK towns since the start of the pandemic, this is despite the Financial Conduct Authority (FCA) urging banks to ease cuts during COVID-19. As a result, we have seen an acceleration of the existing trend towards digitisation within financial services. For example, six million people downloaded a banking app for the very first time, during the first month of lockdown – which equates to 12% of the UK’s adult population. 

Further evidence of the pandemic serving as a catalyst towards digital adoption is evidenced by the 40% of consumers across France, Germany and the UK who claim it has changed the way they bank. To support this digital revolution in financial services, is the concept of open banking, whereby individuals can permit regulated third parties to access their data through API’s (Application Programming Interfaces). This in turn unlocks better, more personalised products, which in turn can then improve the overall effectiveness of the UK’s banking sector.  

One aspect within financial services which stands to gain from the real-time sharing of customer data is remote identity verification over digital channels. Indeed, creating a robust digital identity which offers customers the flexibility to share their identity attributes may go some way towards countering the rising tide in digital fraud, which according to Onfido’s recent Fraud 2020 Report increased by 40% during the COVID-19 Pandemic. 

 What is digital identity and why is it important? 

To understand the concept of a digital identity and its relevance to financial services, we must return to first principles. Our identity refers to any number of attributes that relate to a person. For example, on our birth certificates these may include identifiers such as our name, date and place of birth. This becomes our ‘legal identity’. However, over time we are also imbued with Government-issued forms of identity, for example a passport or driver’s license (which also qualify as photo-id). Added to this we may also require a ‘proof of address’- a form of identification often issued by a trusted institution such as a bank.  

It is using these forms of identification which predicate much of our access to financial services, and it is in this context where traditionally paper-based forms of identity can be replaced in a digitised world. This is especially important given there are still 1.3 million people in the UK without a bank account. Indeed, in written evidence to the Treasury Select Committee’s Consumer Access to Financial Services publication, on the potential barriers to opening a bank account, the FCA mentioned “consumers may have difficulty proving their identity, for example, those with no permanent address or who move often, those who do not have a passport or driving licence or UK paper utility bills in their name”.  

It may therefore be suggested that a digital identity (or improving digitised forms of identity) may reduce the friction inherent in accessing financial services, driving UK efforts towards enhancing financial inclusion.    

Digital identity in the UK 

In the UK, several initiatives have been launched on digital identity, and it may be said that we are approaching an inflection point when it comes to digital identity policy in the UK. Successive Governments have examined the clear benefits of introducing a digital identity. Indeed, in this area the UK’s journey can perhaps be characterised as a series of false starts.  

The most notable step on this journey, was the Government’s plan for an identity verification programme that would have allowed UK citizens to access public services through one ‘Government gateway’ known as ‘Verify’. However, its rollout which was originally intended to reach 25 million users by the end of 2020, is due to be scrapped after eight years of operation.  

Now, a new ‘first’ step on the UK’s journey to digital identity is beginning with the recently published Department for Digital, Culture, Media and Sport (DCMS)  paper on “UK digital identity and attributes trust framework”. In response to last year’s Digital Identity: Call for Evidence, the UK Government sought to create a clear framework of rules which show what ‘ good’ digital identities look like; establish a governance and oversight function to own these rules; and develop proposals which remove the legislative blockers to the use of secure digital identities. The DCMS Trust Framework has been billed as the first ‘working version’ of this broader vision, and is further central to the Government Digital Service’s work to develop a new cross-government single sign-on and identity assurance solution. 

Alongside this are the pioneering recommendations in the Kalifa Review and fresh impetus provided by the Government’s original consultation response on digital identity. Indeed, the Kalifa Review’s first recommendation acknowledges the UK must “deliver a digital finance package that creates a new regulatory framework for emerging technology”, where digital identity should play a central role in the future-proofing of our public infrastructure. The benefits are clear, according to a recent report from McKinsey, which predicted that the adoption of digital identity could unlock economic value equivalent to 3 per cent of GDP in the UK by 2030.  

Calls to action 

Building on the DCMS Trust Framework, and Kalifa Review, the UK Government has clearly put digital identity back at the heart of policymaking. And whilst we continue to see international jurisdictions forge ahead on digital identity – such as the usage of ‘Bank ID’ across much of Scandinavia, which have seen penetration rates of over 80 per cent – without coordinated action the UK may potentially risk falling behind.  

We look forward to working with the financial services sector as it looks to develop innovative open banking-driven solutions that complement the broader use of digital identity in the economy. The Government has a key role to play in making this a reality as it guides the UK towards an economy where digital identity verification becomes the norm. To do so, the Government must: 

  • Remain focused on developing a trusted digital identity framework in the UK and promote its widespread adoption across the economy. 
  • Build on existing experience in the sharing of customer data – such as that developed by open banking – ensuring common standards and authentication methods; and 
  • Develop a robust trust framework and liability model, alongside a dedicated oversight body.  

The OBIE is a unique repository of insight, expertise, and experience gained from having brought the open banking programme to life in the UK. We are pleased to make this thought leadership available to the broader open banking ecosystem, as part of a new, regular, ‘The OBIE Op-Ed’ series.

Contact press@openbanking.org.uk to request coverage of a specific topic.

Transforming public sector delivery through open banking technologies 
  • The solutions provided each day by the public sector are vast, complex, and essential – but also reliant on legacy banking issues and workarounds that increase complexity and the possibility of mistakes
  • Open banking enables more effective delivery of essential public services, reduction of errors and, a more inclusive financial services ecosystem for people and small businesses
  • The OBIE was delighted to support HMRC in tendering for an open banking-enabled third-party provider and hopes to see the use cases expand over the coming months

The public sector and Government departments have a challenging role in today’s society. While easy to criticise from afar, their task is immense, complicated, and on a scale that few private sector businesses will ever face – without considering the impact of the COVID-19 pandemic.

A key function in any organisation, public or private, is contingent upon its relationship with a banking provider. This is even more critical for a core distributor, such as the Department for Work and Pensions (DWP) or a core collector, such as HM Revenue and Customs (HMRC). The volumes they process are staggering: HMRC collected around £627 billion in the 2018/19 tax year, while the DWP distributed £190 billion in 2019/20.

Banking’s particular legacy issues are embedded into payment frameworks and typically solved by either expensive or near-perfect workarounds, further complicating the system. When these ‘workarounds’ function, we are none the wiser. But when these solutions fail (and they do) they can cause serious issues.

Take HMRC: imagine 1000 people paying corporation tax to HMRC. Each must quote a reference number, sort code, and account number. Once, a cheque would be submitted with the relevant paying-in slip. But what happens when payments are made with the incorrect reference, or cheques are sent without paying-in slips? Maybe the person doesn’t have online banking or a cheque book? While payment via debit card may provide another bank workaround, how do we fix the 1% of errors that still occur?

The teams that repair transactions have a challenging role. With this HMRC example, they would need to manually search records for similar matches and use antiquated (legacy) methods to allocate income. Combined with the transaction fees incurred by card settlement, the result is a difficult environment in which to provide a logical, cost-effective solution.

Open banking provides an answer. Let’s first focus on failed payments due to incorrect referencing. Instead of relying upon manual rectification, open banking automates the entire process: when sort codes, account numbers, references, and amounts are pre-filled, that 1% of errors disappears.

Delving deeper into the public sector, we see many use cases where open banking could deliver similar benefits: bar code payments for manual payment methods, child support repayments, benefits over-payments. These can all be addressed with open banking.

The potential of this technology to the public sector is so considerable that HMRC recently tendered and awarded a contract for integrating open banking payment processes. Ecospend, an ecosystem participant, was selected to streamline and automate parts of HMRC’s payment processes, minimise errors, reduce fraud, and improve ease of use for taxpayers. This means that payments can be sent directly from a payer’s bank account, using validated HMRC data to pre-fill the details outlined above, while funds can be transferred via Faster Payments without the need to share card or bank details. HMRC is also in the process of awarding a Confirmation of Payee (CoP) contract, (CoP is a Pay.uk product underpinned by the open banking directory).

The strongest weapon in open banking’s armoury is much more than reducing errors: it’s the potential to create a more diverse and inclusive financial ecosystem. Many people who deal regularly with our public sector are financially excluded. Some cannot get a debit card or bank account as they exist in a cash-only society. They have no credit file, they pay in person at a post office, make deposits at a bank and use pre-paid meter cash networks. Open banking will soon ’open up’ their access to the digital society.

Open banking enables a secure framework that allows customers to digitally authenticate themselves to third-party providers to share data or to make a payment. If we extend these principles, businesses (or indeed public departments) could create a framework that enables people to share their identity with other third parties within similar trust and security frameworks with the consumer’s consent.

This will make it easier to open a bank account or access online services or an app on a smartphone. There is no credit risk in these instruments, so the financially excluded could access instant and accurate payment and account methods. This in turn would lead to better tariffs. Right now, the only barrier is digital access. Open banking will enable much more of society to be included.

The COVID-19 crisis has taught us some harsh lessons, but it has also been a catalyst for much needed change within the financial services sector. In the post-COVID era, the demand for digital solutions will only gain momentum and open banking must be at the heart of it.

The OBIE is a unique repository of insight, expertise, and experience gained from having brought the open banking programme to life in the UK. We are pleased to make this thought leadership available to the broader open banking ecosystem, as part of a new, regular, ‘The OBIE Op-Ed’ series.

Contact press@openbanking.org.uk to request coverage of a specific topic.

Delivering innovative payment solutions in a changing world
  • Fostering innovation in the payments landscape is crucial to building tailored services that meet the needs and expectations of a modern economy
  • Building on open banking’s successes – including the recent processing of over 1.2 million open banking-enabled payments in a single month – can lead to cheaper, faster, and more secure payments for consumers and businesses
  • The UK needs a coherent payments strategy that has open banking payments at its core, not at the periphery
  • Delivering the benefits of open banking is an ongoing journey; work must continue to drive adoption and monitor regulations to ensure its full benefits are realised

The way we manage our money is changing. The uptake of financial services apps and the use of open banking-enabled services are increasing rapidly, driven in part by COVID-19. According to a survey of 2,000 UK adults in early July 2020, one in five started using online banking apps during the first lockdown and 54% now use them regularly. Similarly, the number of people and businesses using open banking-enabled products has doubled to 3 million in just over six months. These innovative offerings are addressing real need and delivering clear benefits at a critical time.

Against this backdrop of behavioural change, the Treasury has been conducting its Payments Landscape Review, looking back through changes delivered over the past decade to consider what needs to be done to ensure consumers, businesses and the wider economy benefit “to the fullest extent” from payments networks.

Where do we stand?

There is much to be thankful for in the UK’s payments landscape. Faster Payments – an inter-bank agreement that reduced the time taken to transfer payments between accounts – allows for near-real-time settlement. Cards are widely accepted, and online shopping faces few barriers. The UK’s track record for innovation also stands up to scrutiny. For example, contactless payments have been enabled up to a value of £45, and the use of biometric and smartphone authentication is increasing.

But there are aspects of our payments ecosystem that still need to be improved. People should be able to cancel subscriptions at the tap of a button, not through a cumbersome phone call. This is crucial to avoiding subscription traps, a key tenet of the Competition and Market Authority’s (CMA) work on the loyalty penalty faced by too many consumers. Further, too much money is being lost to fraud, and the protections in place are inadequate. Lastly, too many businesses pay too much simply to receive incoming payments. At a time when businesses are struggling to remain viable, this needs to be addressed.

Where do we go from here?

We’re beginning to see growth in open banking payments. In 2018, 320,000 open banking payments were made. This rose to over 3.4 million in 2020. In 2021, this has jumped dramatically, rising to 1.2 million monthly open banking payments in January alone. This leap demonstrates how open banking can be the vehicle to take innovation in payments to new levels, enabling quick and secure payments directly between bank accounts, without the need for cards. This means retailers and charities accepting open banking payments, with funds going straight into their bank accounts and minimal transfer fees. See here how this was used to great effect during Captain Tom’s heroic fundraising last year. Open banking allows you to securely make payments without inputting unwieldy card details or to feel the need that you must save card details within a website. All can quickly be approved via your banking app or even by scanning the humble QR code.

Businesses will also be able to easily reconcile payments, using integrated invoicing, payment, and accounting software, powered by open banking.

At the Open Banking Implementation Entity (OBIE), we are particularly excited by Variable Recurring Payments (VRPs), a smart and sophisticated form of direct debit, which has the potential to solve the subscription trap by allowing people full control over their subscriptions, and the power to cancel them at any point. In the immediate term, we are in the process of developing a solution using VRPs for ‘Sweeping’ between an individual’s accounts, a move we see as a stepping-stone on the way to seeing VRPs applied across the broader economy. Greater control, greater security, greater speed, and lower cost – an essential innovation.

How do we deliver this vision?

Open banking provides a demonstrable means of delivering new innovative services and is a tangible example of a regulatory initiative that allows commercial activity to evolve from and complement existing payments infrastructure. The Open Banking Standards provide the basis upon which innovation can flourish without necessitating the need for participants to join the schemes directly.

For these innovative, world-leading initiatives to become a reality, we need a commitment to deliver the open banking revolution to completion. We at OBIE are proud of our achievements over the past three years and the role we have played in revolutionising how financial services serve consumers. It takes us one step closer to open finance, which could include data from areas such as pensions, mortgages, savings, and insurance. In order to continue making the most of the project and cement its benefits into the future, the OBIE, or its successor body, must have the remit to continue driving adoption and the power to recommend tweaks to regulation that may be required in the future. A coherent payments strategy is needed that puts open banking at its core, with the New Payments Architecture explicitly facilitating open banking payments and reducing the cost of faster payments.

We’re all striving for the same end game: a satisfied, empowered, and informed customer served by a buoyant and vibrant market. Regulation can create the right environment, conditions, and framework for the market to innovate and compete, both kickstarting the industry into action where it hasn’t occurred voluntarily and enabling disrupters to enter the market and cause a new sense of competition themselves.

We look forward to working with policymakers, industry, and the open banking ecosystem to make this payments landscape a reality.