Open banking adoption is on the rise and gaining momentum -- but its development is at a pivotal point if the technology is to reach true ubiquity, according to a new report released by consultancy 11:FS and bank payment company GoCardless.

Through a survey of nearly 1,000 UK businesses, the study reveals that almost a quarter (23%) say they are ‘very familiar’ with open banking. Those who are currently using it or have done so in the past have experienced a range of benefits: Nearly half (48%) cite ‘faster payments’ as the biggest advantage, followed by better visibility into payments (35%) and reduced payment fraud (35%).

Adoption is uneven but the appetite is there 

In addition to quantitative insights, the report, titled “How to Take Open Banking Payments Mainstream”, also includes in-depth interviews with payment experts and a range of organisations including those from financial services, utilities, telecommunications and charities.

Analysis indicates that adoption is highest in sectors with clear cost savings from card payments, such as credit and lending and others with high-value transactions, and software companies with more recurring, online payments. 

The report also predicts that construction, consumer goods and media will be among the next verticals to adopt, with education, professional services, utilities and others following on. Retailers and hospitality -- traditionally businesses with a higher proportion of in-person transactions -- are not forecast to introduce open banking payments until at least 2027.

Overall, however, a majority of UK businesses express interest in trying open banking payments, with over three quarters (77%) saying they’re ‘likely’ to introduce it over the next two years.

Obstacles remain but the path is visible

Despite open banking users reaching 10 million earlier this year, mass adoption is not yet on the horizon. The report identified six key obstacles currently blocking the way, including the need to further develop open banking infrastructure, improving and harmonising the customer experience, and a full rollout of VRPs. 

The report highlighted VRPs as the ‘hero functionality’ that will enable open banking to go mainstream. This would make open banking payments a viable alternative to cards, covering common ‘card-on-file’ transactions. 

Other recommendations include:

• providing a commercial incentive for banks to improve their processes beyond the mandatory minimums

• encouraging open banking payment providers to work together to establish a recognisable and ubiquitous brand that helps to raise awareness and engender trust

Paul Stoddart, President at GoCardless, said: “We’ve been collaborating with regulators and other industry participants to accelerate open banking adoption since its introduction in 2018. After a slow start we are seeing increasing demand from our customers as well as other businesses in the value chain investing in ‘open banking readiness’.

“This is exciting because open banking has the potential to fundamentally transform how we pay and get paid. But there’s a way to go before we hit mass adoption and blockers still remain. We hope this report will contribute to a rich debate about the future of open banking in the UK and help to take it mainstream.” 

Benjamin Ensor, Director of Research and Strategy at 11:FS, said: “The vision of open banking is hugely compelling but in reality, while the UK has made a solid start, we’re still very early in the journey. This extensive report brings together key voices from the financial services industry and the UK businesses that stand to benefit from open banking, enabling us to analyse why we are where we are -- and how to unlock the next stage of open banking payments.

“From improving basic infrastructure to agreeing on a set of consistent terminology which will help consumers become more comfortable and familiar with the technology, there is still a lot of work to do. The promise of open banking is there; everyone in the ecosystem must now work together to realise it.”