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The United Kingdom, a pioneer in open banking, is now charting a course toward “open finance,” leveraging a decade of progress since the introduction of PSD2. This regulation laid the foundation for banks to share data with third-party providers, unlocking a new era of financial services.
According to Marion King, Chairperson and Trustee of Open Banking Ltd., the U.K.’s open banking initiatives have reached 10 million users, representing 15% of the population. “It’s a very good number,” King noted in an interview. “We’re seeing robust double-digit growth, and this is just the beginning, as current measurements only include the nine banks involved in the Competition and Market Authority’s (CMA) initial open banking efforts. The actual figures could be higher.”
King highlighted the growing demand for secure data exchange as a positive indicator of further adoption and innovation in the sector.
National Payments Vision Drives Progress
Recent regulatory actions aim to solidify and expand the successes of open banking. In November, the Bank of England, Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), and Payment Systems Regulator (PSR) announced plans to align their collaborative efforts with the government’s National Payments Vision (NPV). This vision seeks to modernize the U.K.’s payments infrastructure and broaden payment options for consumers and businesses.
Digital payment adoption is already surging. Reports show that 42% of U.K. consumers now use digital wallets to pay merchants online, showcasing a growing preference for peer-to-peer and digital transactions.
Variable Recurring Payments (VRP) on the Horizon
A recent FCA letter to Prime Minister Keir Starmer revealed plans to introduce variable recurring payments (VRPs) as part of open banking. VRPs allow customers to authorize payment providers to make recurring transactions within agreed limits, offering flexibility and convenience. The CMA has already approved the CMA9 banks to implement VRP APIs, enabling seamless fund transfers between a customer’s accounts.
Moving Toward Open Finance
The FCA is also exploring opportunities to transition from open banking to open finance. A key element of this shift involves using anticipated powers under the Data (Use and Access) Bill to support open finance initiatives, with a focus on small and medium-sized enterprise (SME) lending. The FCA has proposed reducing costs associated with anti-money laundering compliance and easing know-your-customer (KYC) requirements for small transactions to drive adoption further.
Additionally, the Treasury’s ongoing modernization of the Consumer Credit Act, which began in 2022, could accelerate these changes, reducing regulatory burdens while fostering innovation.
A Future Shaped by Open Finance
As the FCA works to set new digital service standards and potentially remove the £100 contactless payment limit, the U.K. is positioning itself as a global leader in financial innovation. These advancements aim to not only enhance consumer convenience but also drive economic growth by leveraging secure, data-driven financial ecosystems.
With open banking paving the way, the U.K.’s journey toward open finance promises a transformative future for businesses and consumers alike.
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