# Open banking: The real step change for the global payments industry
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-02-25
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: The Future of Open Banking: Revolutionising Payments
Meta Description: Discover how open banking is driving innovation in the payments industry, unbundling services and creating more choice for consumers. Find out more.
URL: https://financedigest.com/open-banking-the-real-step-change-for-the-global-payments-industryhtml

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_By **Mike Peplow,** CEO at_ [_Paynetics UK_](https://paynetics.digital/)

The pandemic has revolutionised the way we pay. The shift to contactless payments and cash alternatives continues to make headlines, as more and more transactions are made digitally. But the real step change for the global payments industry lies in open banking.

**Unbundling payments**

The rise of neo and [challenger banks](https://www.financedigest.com/the-rise-of-challenger-banks.html "challenger banks") in recent years has led to a surge in the provision of accounts and services available in the finance market.

It’s not unusual for consumers to have multiple banking relationships for loans, [credit cards](https://www.financedigest.com/what-happens-to-credit-card-debt-when-you-die.html "What happens to credit card debt when you die") and mortgages. And this has extended to the point where consumers are happy to have multiple [bank](https://www.financedigest.com/community-fintech-11onze-to-launch-el-canut-a-super-app-offering-universal-banking-accounts-and-digital-debit-cards.html "Community fintech 11Onze to launch – EL CANUT – a super APP offering universal banking accounts and digital debit cards") accounts across different providers for their transactional accounts and day-to-day spending.

Indeed, the ‘unbundling’ of [banking services](https://www.financedigest.com/the-gmp-cell-banking-service-market.html "The GMP Cell Banking Service Market") has accelerated thanks to the growing wave of fintechs, with a focus on digital-based solutions, enabling banking to be delivered in a similar manner to software services – i.e. without having to [set up an actual bank](https://www.financedigest.com/bank-of-england-set-for-second-hefty-rate-rise-in-a-row.html "Bank of England set for second hefty rate rise in a row").

The barrier to entry to launch new banking [services has lowered, while at the same time the willingness of consumers to ‘try out’ new services from non-traditional providers](https://www.financedigest.com/high-energy-shockwave-therapy-units-market-end-user-demand-by-types-regions-top-players-service-provides-regional-outlook-and-forecast-to-2028-2.html "High Energy Shockwave Therapy Units Market End-User Demand by Types, Regions, Top Players, Service Provides, Regional Outlook and Forecast to 2028") has dramatically increased.

According to [MoneyHub](https://www.moneyhubenterprise.com/press-blog/2019/11/8/open-banking-enabling-the-age-of-the-multi-banked), 42% of financial management platform users now have more than one bank account, while 65% of challenger bank customers continue to have accounts with their existing high street banks.

Add to this the shift to e-commerce during the pandemic – which has increased the volume of online transactions, monthly subscriptions, and growth of [digital marketplaces](https://www.financedigest.com/film-and-tv-digital-marketplaces-a-revolutionary-take-on-an-age-old-industry.html "Film and TV digital marketplaces: a revolutionary take on an age old industry") – and the opportunity for consolidation services has never been clearer.

**Creating more choice**

This is where [open banking](https://www.financedigest.com/why-open-banking-is-safe.html "WHY OPEN BANKING IS SAFE?") comes into play. Introduced in 2018, alongside new PSD2 regulation, [open banking grants access](https://www.financedigest.com/the-open-banking-revolution-enabling-accessible-and-inclusive-finance.html "The open banking revolution – enabling accessible and inclusive finance") to financial data to third-party developers (provided users give their permission).

By enabling non-financials to develop APIs around existing banking infrastructure, a host of innovative new services and applications are now [improving the customer experience](https://www.financedigest.com/improving-customer-experience-and-profits-with-embedded-payments.html "Improving customer experience and profits with embedded payments").

![Mike Peplow](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/mike-peplow-paynetics-uk-450x336-1736838555537-compressed.png)

Mike Peplow

These ‘universal apps’ aggregate data across multiple accounts into one, easy-to-use platform, [offering customers](https://www.financedigest.com/any-business-can-now-offer-their-customers-financial-services-how-embedded-finance-is-reinventing-the-wheel-when-it-comes-to-banking.html "Any business can now offer their customers financial services: How embedded finance is reinventing the wheel when it comes to banking") a 360-degree view of their spending and bringing the ever-growing number of financial touchpoints we encounter in our daily lives under one roof.

In doing so, [open banking has the power to not only transform the way we track and understand our spending but the very concept of what a bank is and who can provide our financial services](https://www.financedigest.com/facilitating-open-finance-through-secure-services.html "Facilitating open finance through secure services").

**The** [future of periodic payments](https://www.financedigest.com/what-does-the-future-hold-for-corporate-payments.html "What Does the Future Hold for Corporate Payments?")

With the use case for open banking beyond question in a [post-COVID world](https://www.financedigest.com/financial-tech-what-will-stick-in-a-post-covid-world.html "Financial tech: what will stick in a post-COVID world?"), it won’t be long until this technology replaces BACS payments – one of the most common bank-to-bank payment methods available today. BACS [currently accounts](https://www.financedigest.com/euro-zone-current-account-swings-back-to-a-surplus-in-june.html "Euro zone current account swings back to a surplus in June") for around 90% of all regular monthly payments via direct debit transactions.

[Open banking](https://www.financedigest.com/isnt-it-time-open-banking-delivered-for-businesses.html "Isn’t It Time Open Banking Delivered for Businesses?") allows aggregators such as payroll providers to make payments directly to employees rather than through BACS, disintermediating the banks in the processing of direct debits and standing orders.

And the payments revolution doesn’t stop there. Open banking will also enhance real-time payments, going head to head with the card scheme to enable instant transactions between retailers and consumers.

**Request to Pay**

While UK consumers can already access faster pay on mobile to make [real-time payments](https://www.financedigest.com/the-role-of-invisible-real-time-payments-in-fueling-the-future-of-cx-in-business.html "The role of invisible, real-time payments in fueling the future of CX in business") from one account to another, open banking will take this technology one step further using Request to Pay (RtP).

As the name suggests, this means users will be able to proactively request payments from other [bank accounts](https://www.financedigest.com/now-is-the-time-for-banks-to-introduce-intelligent-account-analysis.html "Now Is the Time for Banks to Introduce Intelligent Account Analysis"). Debtors will receive a notification, via a [mobile banking app](https://www.financedigest.com/why-you-should-use-a-mobile-banking-app-and-how-to-make-the-most-of-it.html "Why You Should Use a Mobile Banking App – and How to Make the Most of It") or similar, detailing the amount owed and due date, thus providing both businesses and consumers with a simple, flexible way to reconcile accounts.

Needless to say, request to pay has the potential to revolutionise invoicing and regular payments. For debtors, RtP [offers greater flexibility and convenience](https://www.financedigest.com/convenience-offered-by-home-automation-solutions-to-offer-opportunities-for-market-players-iot-has-encouraged-the-demand.html "Convenience Offered by Home Automation Solutions to Offer Opportunities for Market Players; IoT has Encouraged the Demand"), by enabling partial payment options, a better view of outstanding bills and a simpler way to pay.

Meanwhile, payees benefit from greater visibility over [cash flow](https://www.financedigest.com/should-your-business-reconsider-invoice-financing-top-tips-on-why-reappraising-this-method-liberates-business-cash-flow.html "Should your business reconsider invoice financing? Top tips on why reappraising this method liberates business cash flow"), which in turn can drive more accurate forecasting, reduced billing costs thanks to the switch to electronic invoicing and increased reconciliation.

**Benefits for retailers**

In particular, retailers will be quick to [adopt open banking](https://www.financedigest.com/strong-customer-authentication-must-be-adopted-to-make-open-banking-a-success.html "Strong Customer Authentication must be adopted to make open banking a Success") technology, particularly for online purchases, thanks to its lower transaction costs, which should also ensure widespread acceptance among consumers.

By encouraging a higher volume of contactless and digital transactions, open banking can reduce the hidden cost of cash from mishandling, and other inefficiencies, with cash-free payments [estimated to save retailers £7.2 million a year](https://a2zcasinos.org/global-payment-trends/digital-payments/).

This innovation within the payments industry couldn’t be more timely, with the pandemic accelerating the shift towards online retailing as [well as fundamentally changing the way we work](https://www.financedigest.com/biden-says-he-is-doing-well-working-after-testing-positive-for-covid.html "Biden says he is ‘doing well,’ working after testing positive for COVID"), live and pay.

This shift is likely to be permanent. We’ve all grown used to the ease and convenience of [digital payments](https://www.financedigest.com/digital-payment-tools-the-new-normal-for-charity-fundraising.html "Digital payment tools: the new normal for charity fundraising?"). As consumers and businesses alike come to demand more from their payment providers, the financial [services industry](https://www.financedigest.com/how-digital-identity-verification-will-revolutionize-security-defenses-in-the-financial-services-industry.html "How Digital Identity Verification Will Revolutionize Security Defenses in the Financial Services Industry") must raise the bar for what comes next.

Fortunately, open banking is not only redefining our concept of a ‘bank’ but driving what’s possible in the world of payments over the [next decade](https://www.financedigest.com/the-next-decade-to-see-the-humanized-liver-mice-model-market-detonate-innovation.html "The Next Decade To See The Humanized Liver Mice Model Market Detonate Innovation").


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