In 2003, Henry Chesbrough shook up the financial world with his groundbreaking book, Open Innovation: The New Imperative for Creating and Profiting from Technology. In his book, he envisioned a world where businesses shared data and technology, a concept that paved the way for what we now know as Open Banking.
Back then, the UK was still deeply entrenched in old-school banking. Cheques were king, big banks ruled the high street and Oyster cards were just making their debut on the Tube. Fast forward 20 years, and the landscape has shifted dramatically.
Now, as we consider the next two decades, you may wonder, “What's next? What tech breakthroughs will redefine Open Banking Payments in the UK?”
From an alternative to your debit cards to speaking with smart advisers, we've rounded up the top 10 tech innovations set to revolutionise how you manage, move and even think about money.
1. A real alternative to payment cards
Open Banking is challenging the traditional reliance on debit, credit and charge cards, which often come with high fees and security risks like fraud.
It’s growing fast, too. In the UK, 11.78 million payments were made through Open Banking in September 2023 alone.
So, what's the difference between payment cards and Open Banking?
Cards act like a signpost, directing transactions to your funds. But Open Banking provides a direct, secure link to those funds. This results in greater choice of payment methods, lower fees and better security.
2. Integration with digital wallets
In the UK, digital wallets (think Apple Pay and Google Wallet) accounted for 10% of all payments made in 2022 - that’s as popular as cash! And it’s forecast to grow to 21% market share by 2026.
With initiatives like The OpenWallet Foundation, we could see an open-source framework that defines how these wallets work. This would make digital wallets accessible and standardised, similar to how any web browser can access any website.
But adding a card to a digital wallet doesn't solve existing issues like high transaction fees or fraud risks - it just shifts them to a new platform. The goal is to bypass cards entirely, creating a direct and secure link to your funds. And this is where Open Banking can play a valuable role.
3. AI-powered personalised services
While interest in AI may have recently exploded, much of the technology has actually been around for a while. What's really changing is how AI technology is becoming more accessible.
Now, small and ambitious startups can easily plug into open-source machine learning models rather than maintaining a whole division of AI experts. And this opens up a world of possibilities for both consumers and businesses.
From enabling highly tailored financial advice to helping companies spot unusual payment patterns, AI is making banking smarter. But this isn't just about personalised services. It's also about broader applications that can nudge us towards better financial habits or help with categorising our spending.
Given that 79% of people are more likely to trust AI-powered financial recommendations, there’s an exciting opportunity to partner this tech with Open Banking.
4. Blockchain-backed transactions
Blockchain often gets a bad rap because of its ties to cryptocurrencies, but it has much more to offer, especially in the financial sector.
While versions of smart contracts already exist, the real game-changer is their wider adoption in financial systems such as online banking and payment processing. Central banks like the Bank of England are already eyeing this technology, which means we'll likely see more of it in the future.
The real perk of blockchain technology is cost savings. Blockchain reduced the cost of cross-border settlements by $301 million in 2021, and those savings are expected to skyrocket by over 3,000% in the next ten years.
By incorporating Open Banking into blockchain-backed transactions, the financial world could offer you new, smarter ways to manage your money. This could lead to cheaper international transfers or automatically paid bills through smart contracts, for example.
5. Fewer errors
Open Banking brings smart tech to payments, reducing mistakes. Instead of manually typing in long account numbers and sort codes, for example, you could confirm payments with a few clicks.
Payment data would be pulled directly from your bank, reducing the chances of typos or wrong entries. In contrast, card payments can trip up due to input errors, expired card details or insufficient funds.
6. Faster transactions
Waiting for payments to clear isn't fun for anyone. Whether you're a shop owner or a customer, quick payments make life easier.
Unlike card payments, which have to seek approval from different financial institutions before the cash lands where it's supposed to, Open Banking is instant.
Faster transactions help businesses manage their cash flow better, and it gives customers peace of mind, knowing their payments have gone through straight away.
7. Augmented reality in banking
Imagine you're in a virtual car showroom, and through your AR (augmented reality) glasses, you can instantly see payment plans that fit your budget. This might sound like the future, but it's closer than you may think.
47% of bankers think that by 2030, people will use AR and VR (virtual reality) for financial transactions, from opening an account to making trades. Big banks like BNP Paribas and Citi are already trialling the technology.
AR combined with Open Banking data could make banking more hands-on, helping people visualise financial data more clearly, see different ways to invest, or quickly compare financial options when they're ready to buy something.
8. Smart advisers
Smart advisers are set to shake up how we manage our money. These AI-powered services will be able to give you real-time spending tips and even predict how well different investments might do, all based on your personal data.
Best of all, smart advisers won't just give you advice. With your permission, they’ll also be able to move your money to where it'll grow the most using Open Banking Payments.
9. Seamless integration with IoT
The Internet of Things (IoT) is about to make Open Banking even more handy.
Working together, these technologies could enable your smart home to automatically analyse your energy usage and switch utility providers to make sure you're getting the best deal. Or they could enable your car to pay its own insurance.
Pairing IoT with Open Banking opens up lots of new ways for financial companies to make money and deliver better services. For example, interactive billboards could let customers buy products on the spot, without the need to type a URL or browse an online store.
10. Enhanced biometric security
UK banks and financial services companies have been using face and voice recognition to make their services secure and easy to use for several years already.
Adoption has been so successful that, in the UK, people are twice as likely to trust biometrics for their online banking than for keeping their social media accounts safe. And two in three people trust biometric tech when it comes to managing their money online.
So what's coming up next? Incorporating biometrics with Open Banking, you'll have even more options to prove you're you. Imagine confirming payments with just your face, without having to open your banking app. Biometrics and Open Banking are set to make life simpler and safer for everyone.
In summary
The UK's financial landscape has come a long way since Henry Chesbrough first introduced us to the idea of 'Open Innovation' back in 2003. But back then, even Chesbrough couldn’t imagine quite how deeply technology was going to shake up the banking sector.
Today, Open Banking Payments are transforming how we think about money, promising quicker transactions, smarter advice and better security. Time has proved that the shift towards Open Banking isn't just a passing trend but a fundamental change that's here to stay.
With game-changing tech like AI, IoT and biometrics becoming a part of our everyday banking, the future promises to be not just convenient but also more secure and personalised.
But the story doesn't end here. Open Banking is being revolutionised by new social impact initiatives and user experience (UX) approaches, making banking not only more efficient but also more socially impactful and user-friendly.