The US’s Open Banking Success Will Depend on the Use-Case

Recent open banking statistics from the U.K. might initially suggest a significant shift in payment trends, potentially indicating that open banking is poised for success in the U.S, according to PYMNTS. However, a deeper analysis reveals distinct differences between the two regions’ approaches. While the U.K. has embraced a mandated model for open banking, the U.S. operates in a market-driven manner.

In the U.K., open banking has seen substantial growth, with transactions doubling in 2023 compared to the previous year. July alone witnessed 11.4 million open banking payments, marking a 9% increase from June. The number of active payment users surged by 10.5% from June and an impressive 68% from July 2022.

Despite these encouraging growth rates, it is essential to note that they stem from a relatively small base. Open banking has been gradually shaping up in the U.K. since the middle of the last decade, following a mandate from the Competition and Markets Authority (CMA) in 2017. The U.K. boasts a population of approximately 67 million, with around 49 million individuals having bank accounts, making them potential users of open banking services.

The driving force behind this growth has been single domestic payments, with a notable 8% increase from June, reaching 10.5 million payments. This surge has been fueled by government payment solutions, as well as the integration of various financial institutions and investment platforms. These entities have introduced «pay by bank» options, facilitating the funding of savings and investment products. Common transactions include account top-ups and credit card bill payments.

However, the active payment user count represents only about 10% of the eligible population, indicating both untapped potential and a gradual adoption trajectory.

In terms of applying these lessons to open banking in other markets, particularly the U.S., success is not guaranteed. The key factor lies in addressing customer pain points and providing payments that are deemed superior to traditional card usage, which is predominant in the U.S. market.

Collaboration between banks and FinTechs will be crucial in realizing these aspirations. Banks will need to offer accessible API portals to users and authorized third parties, enabling the secure flow of permissioned data. Low-hanging fruit for open banking in the U.S. could involve pay-by-bank and account-to-account transfers.

Craig McDonald, Chief Business Officer at Trustly, emphasized that open banking has the potential to provide significant advantages for merchants and consumers. These advantages include a seamless user experience, lower costs, and transactions that are non-refutable, reducing the risk of chargebacks. McDonald suggests that by leveraging open banking, transactions can be directed based on attributes like cost or user behavior, potentially disrupting the card-dominated U.S. market.

McDonald further explains, «If you look at the incumbent payment rails in the card-not-present transaction environment, A2A has a lot of benefits.»

The success of open banking in the U.S. will depend on specific use cases and addressing the unique demands of the market. Learning from the U.K.’s experiences and adapting to the U.S. context will be vital for open banking’s growth and adoption in the country.