# How Open Banking will change the banking industry in the next 10 years
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-12-06
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: How Open Banking is Revolutionising the Banking Industry
Meta Description: Discover how Open Banking is transforming the industry, creating a competitive marketplace and reducing payment costs, leading to a better banking experience.
URL: https://financedigest.com/how-open-banking-will-change-the-banking-industry-in-the-next-10-yearshtml

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_By_ _**James Hickman,** CCO of Ecospend._

In 2016, the Competition and Markets Authority (CMA) published a report on the UK’s retail banking sector which found that newer banks were struggling to access consumers and grow. Their solution to this centered around the promotion and implementation of Open Banking, a concept that is set to change the sector by enabling banking solutions that are quicker, cheaper and provide customers with a better overall banking experience.

In the six years since, [Open Banking](https://www.financedigest.com/how-will-open-banking-impact-the-customer-experience.html "How will Open Banking impact the customer experience?") has grown considerably. This growth is now gathering pace, with [Juniper Research forecasting market growth of 2,800% between 2021 and 2026.](https://www.juniperresearch.com/researchstore/fintech-payments/open-banking-market-research-report) Indeed, Open Banking solutions have the potential to revolutionise the banking industry over the next decade in three major ways.

**[Creating a competitive marketplace](https://www.financedigest.com/azerion-and-seenthis-anz-announce-partnership-to-create-a-more-sustainable-marketplace.html "Azerion and SeenThis ANZ announce partnership to create a more sustainable marketplace")**

Open [Banking’s ability to transform the sector over the next decade can be largely attributed to the regulatory changes made](https://www.financedigest.com/fintech-v-the-banks-uneasy-bedfellows-or-a-match-made-in-heaven.html "FinTech v the Banks: Uneasy Bedfellows or a Match Made in Heaven?") as part of the 2018 Payment Services Directive (PSD2). One of the [key developments that resulted from the directive was that third-parties were now able to access customer data](https://www.financedigest.com/sterling-edges-lower-ahead-of-key-data.html "Sterling edges lower ahead of key data") which, until now, had almost exclusively been owned and controlled by the incumbent banks. As the name suggests, [Open Banking providers rely on banks ‘opening up’ data](https://www.financedigest.com/open-data-represents-the-biggest-challenge-to-banks-in-a-generation.html "Open data represents the biggest challenge to banks in a generation") so they can use it to provide a wide array of services, from payment initiation services to customised financial advice.

By being forced to share this data, the existing, larger financial institutions lose the competitive advantage they had over third parties and new competitors, including [mobile banks](https://www.financedigest.com/communicating-with-the-customer-is-the-future-of-mobile-banking.html "Communicating with the customer is the future of mobile banking"). What we are already seeing, and what we will continue to [see in the coming years](https://www.financedigest.com/10-year-david-goliath-crusade-finally-sees-justice-for-off-plan-spanish-property-buyers.html "10 year ‘David & Goliath’ crusade finally sees justice for off-plan Spanish property buyers"), is that less established businesses will be able to disrupt the siloed relationship that banks previously had with their customers, offering cheaper, and better services that they would not have been able to provide prior to PSD2.

We are already seeing businesses take advantage of this. In the four [years leading](https://www.financedigest.com/2022-the-year-that-facial-recognition-will-lead-the-fintech-industry.html "2022 – The year that facial recognition will lead the fintech industry") up to 2022, more than 300 Open Banking firms were registered in the UK, with this number set to grow exponentially. As a knock-on effect, the price of services offered through Open [Banking](https://www.financedigest.com/20-billion-in-bank-service-fees-are-you-overpaying.html " Billion in Bank Service Fees: Are You Overpaying?") and designed to help people better manage their finances are being driven down as competition to offer the best service and retain customers intensifies.

**[Reducing payment costs](https://www.financedigest.com/cobots-in-the-financial-workplace-reducing-costs-attracting-talent-and-enhancing-sustainability.html "Cobots in the financial workplace: Reducing costs, attracting talent and enhancing sustainability")**

One of the other key areas where Open Banking is already having a huge impact is payment services, where innovative technologies and streamlined processes are already saving [businesses time](https://www.financedigest.com/why-the-new-year-is-the-best-time-to-start-your-dream-tech-business.html "Why the New Year is the best time to start your dream tech business") and money. Open Banking enabled account-to-account payment solutions are allowing money to flow directly from one account to another, dramatically reducing costs for business owners (in 2022, UK retailers will pay around £5bn in transaction fees) and increasing the convenience of making payments for customers.

In 2020, the rapid [evolution of the account-to-account payments](https://www.financedigest.com/tracking-the-payments-evolution.html "Tracking the payments evolution") space was highlighted when HMRC implemented Ecospend’s payment initiations across all of their tax regimes. While this was the first time the Government had introduced Open [Banking payment services](https://www.financedigest.com/30-per-cent-of-uk-consumers-would-use-amazon-google-facebook-or-apple-for-banking-services.html "30 Per Cent of UK Consumers Would Use Amazon, Google, Facebook or Apple for Banking Services"), we expect that over the next decade, this will very much become the norm across government departments.

**Improving** [customer experience](https://www.financedigest.com/visionary-banks-fight-the-blur-hybrid-computing-architecture-brings-a-faster-sharper-customer-experience.html "Visionary banks fight “the blur”: Hybrid computing architecture brings a faster, sharper customer experience")

However, increasing time- and cost-effectiveness for businesses is only one side of the coin when it comes to the benefits of Open Banking solutions, which are also [transforming the banking experience](https://www.financedigest.com/transforming-the-banking-experience-to-be-mobile-first-and-people-centric.html "Transforming the banking experience to be mobile-first and people-centric") for consumers. Whereas at one point every transaction would have involved card details and lengthy verification procedures, we are now [moving towards a world](https://www.financedigest.com/analysis-at-world-cup-saudi-crown-prince-moves-back-on-to-global-stage.html "Analysis-At World Cup, Saudi crown prince moves back on to global stage") where payments can be made directly between accounts, without the need for intermediaries or excessive customer input.

As well as facilitating [payments that are more straightforward, consumers will be given a greater range of options as to how they pay, allowing payments to be tailored to a customers’](https://www.financedigest.com/2019-year-customers-take-control-payments.html "2019: The year customers take control of payments") needs. [Instant online payments](https://www.financedigest.com/5-ways-to-maximise-the-value-of-instant-payments.html "5 ways to maximise the value of instant payments") and refunds can be offered alongside ‘pay by link’ services and QR code payments, with many more innovative solutions likely to appear in the coming years. Beyond convenience, Open [Banking facilitates services](https://www.financedigest.com/73-of-employees-in-the-banking-and-financial-services-industries-are-looking-for-better-physical-and-mental-wellbeing-support-in-the-workplace.html "73% of employees in the banking and financial services industries are looking for better physical and mental wellbeing support in the workplace") include budgeting, personal finance and money management products, putting customers in control of their personal finances and providing them with the tools needed to make the most out of the money they have. With [90% of customers reporting that open banking apps and products are easy to use](https://www.openbanking.org.uk/news/obie-publishes-second-open-banking-impact-report/) and set up, we are likely to see strong uptake of similar services over the next decade, stimulating growth in the market and giving consumers an even broader array of personal finance tools.

**Why we are** [ready for Open Banking](https://www.financedigest.com/are-banks-ready-for-the-new-accountability-regime-in-2016.html "ARE BANKS READY FOR THE NEW ACCOUNTABILITY REGIME IN 2016?")

While Open Banking is clearly going to dramatically alter how we use [banks in the digital](https://www.financedigest.com/britains-digital-banks-need-support-amid-banking-turmoil-trade-body.html "Britain’s digital banks need support amid banking turmoil – trade body") age, the change will be accelerated by one group of people in particular. This group is of course Generation Z, the demographic cohort that have grown up in a digital world and are not only the most comfortable with new [banking technology](https://www.financedigest.com/6-technology-trends-banking-2019.html "6 Technology Trends for Banking in 2019"), but also have the skills to embrace it as it appears and evolves. With 42% of Gen Z already using open banking, it is only a matter of time before the technology becomes ubiquitous, [supporting the industry](https://www.financedigest.com/5-ways-the-fs-industry-can-support-the-recovery.html "5 ways the FS industry can support the recovery") as it moves into a more convenient, cheaper and increasingly innovative era.


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