From awareness to adoption: Closing the Open Banking divide

by Alexander Berrai, Deputy CEO at emerchantpay

Open Banking has become a transformative force in fintech and payments, offering the potential for more transparent, efficient, secure and convenient transactions. Despite recently hitting 10 million users in the UK, overall adoption has remained relatively slow. While most financial leaders and merchants recognise the benefits of Open Banking, a significant obstacle remains: the widespread lack of awareness among consumers, who are arguably the most important group for its success. 

Recent research from emerchantpay underscores this awareness gap, revealing that 51% of consumers are unfamiliar with the term Open Banking. Additionally, two-thirds of consumers have never received any communication from their bank regarding the solution. To boost adoption and drive industry growth, banks and merchants must prioritise educating their consumers about Open Banking and its capabilities. Enhancing consumer understanding is essential for increasing adoption, which in turn can lead to greater industry growth, higher revenues and improved customer satisfaction. Building consumer trust by emphasising that Open Banking not only enhances security but also gives consumers greater control over their financial data is crucial to overcoming this awareness barrier.

Despite a lack of awareness, demand is increasing

Although Open Banking is an unfamiliar concept for many consumers, the same research revealed that one in two consumers already use Open Banking without realising it. Furthermore, once made aware of its meaning, the number of consumers who acknowledged using the technology increased to 58%. 

Today’s customers – particularly the younger, digital-savvy generation accustomed to near real-time service delivery, are looking for a faster, smoother online checkout experience. Open Banking meets this demand by enabling instant account-to-account payments, allowing transactions to be completed within seconds without needing to enter lengthy card details. These real-time payments also ensure that funds are immediately withdrawn from a consumer’s bank account, with their bank balance updating instantly. This feature supports more accurate budgeting and spending tracking, resulting in improved financial management for consumers. Additionally, Open Banking’s bank-level security and robust authentication methods can significantly help reduce the risk of fraud.

Demand for Open Banking’s capabilities is clear among consumers – they just need assistance in connecting the term with practical applications and solutions. Real-world examples of successful Open Banking implementations could further bridge this gap, making the benefits more tangible for consumers. This presents an opportunity for banks and merchants to make a meaningful impact. 

The role of merchants and banks

Banks have a crucial responsibility to educate their customers about emerging financial technologies. Given that customers often hesitate to embrace new solutions, coordinated educational initiatives are essential. It is important that banks help their customers fully understand the benefits of Open Banking. Proactive communication highlighting the advantages of Open Banking – particularly in terms of security, convenience, and financial empowerment – is key to driving its adoption. By emphasising the security and control aspects of Open Banking, banks can also help foster greater consumer trust.

For merchants, using clear labels and descriptions on the payment page, along with user-friendly interfaces, can encourage consumers to choose Open Banking as a payment option. For instance, consumers might be more familiar with the term “pay by bank transfer” or simply “bank transfer” rather than “Open Banking”. Making Open Banking more accessible is also vital; simplifying the user journey with intuitive interfaces can reduce consumer hesitation and boost adoption. By offering Open Banking payment solutions at checkout, merchants can significantly improve the customer experience. Additionally, Open Banking allows merchants to reduce the risk of fraud and chargebacks, as all payments are processed with bank-level security and authentication. It creates a win-win for both businesses and their customers, offering them a competitive advantage in the market.

Cross-sector collaboration between banks, fintechs and merchants is essential for the widespread adoption of Open Banking. Such partnerships can enhance interoperability, ensuring that Open Banking solutions are seamlessly integrated into digital platforms.  By working together, stakeholders can create a cohesive ecosystem that delivers consistent and reliable services to consumers, reduces implementation barriers and accelerates overall traction. Collaboration with regulators is also important to ensure a secure and compliant environment that supports innovation and growth.

The future of Open Banking

As eCommerce continues to thrive and with increased adoption from merchants, Open Banking is poised to become a preferred payment method among consumers in the next five years. In fact, nearly a fifth of consumers will likely use Open Banking more frequently within the next five years compared to just 14% who expressed the same intention for Buy Now, Pay Later (BNPL). This suggests that Open Banking could potentially surpass BNPL as the preferred option, offering greater long-term value to both consumers and businesses. 

Thanks to its standardisation as a protocol, the Open Banking payment journey is consistent across different regions, giving it the potential to transcend traditional payment methods. As account-to-account payments become easier and more accessible, it’s likely that more consumers will adopt this solution.Open Banking represents a paradigm shift in financial services, offering greater efficiency and inclusivity. Despite ongoing challenges in raising awareness, the technology’s alignment with consumer demands for faster, more secure and convenient transactions positions it for substantial growth. By closing the awareness gap through better education and strategic partnerships, consumer understanding is likely to increase, paving the way for a strong rise in Open Banking adoption. Early adopters of Open Banking, including both consumers and merchants, stand to gain significant benefits, from enhanced financial management to increased market competitiveness.

Image source: Freepik