Guides

From open banking to open finance and beyond

20 June 2023

In the five years since the creation of open banking in the UK, millions of consumers and businesses are using open banking-enabled tools, ranging from budgeting and savings apps to help manage their money, or benefiting from embedded finance links in their accounting software to help them get paid faster.

There’s been significant progress since the start of open banking’s journey. But so far, open banking products have been limited to payments, personal and business current accounts, and credit applications.

As open banking evolves, and we start the journey to open finance, our guide explores its current and potential uses and looks beyond to ‘smart data’ – applying the same data sharing principles to other sectors.

Variable recurring payments (VRPs)

A key part of open banking’s evolution has been a technology called variable recurring payments for sweeping. This lets individuals automatically move money from their current account to another account (‘me-to-me’ payments), such as moving surplus funds into a separate savings account, or using them to repay a loan to cut the cost of borrowing. 

However, as we move beyond open banking, many eyes are now on VRPs for non-sweeping.

These allow authorised providers – such as a utilities company – to initiate a series of payments for their customers (‘me-to-business’) at different intervals, and for varying amounts, instead of paying the same amount each month regardless of what’s owed. Importantly, the customer gets to define these payment parameters, giving them greater control over repeat expenditure than Direct Debit and card-on-file instructions.

Savings

Savings apps are helping many people to build a regular savings habit by ‘sweeping’ surplus funds from current accounts to interest-generating savings accounts, or by rounding up small amounts of change from shopping bills to add to a savings account.

Open finance could see the creation of innovative products allowing consumers to reverse this process, enabling them to maximise the interest they earn by keeping savings in situ, only moving the money to a current account when needed for mortgage payments, rent or other bills.

Mortgages

A growing number of banks and mortgage brokers use open banking connections to validate a borrower’s income, eliminating the need to provide several years of bank statements. The process can now take minutes instead of days.

And one leading UK building society recently announced it would incorporate open banking-driven affordability checks into its mortgage assessments. For first-time buyers, linking their current account payments to their credit score, and providing additional evidence of a good financial track record — such as regular council tax payments — can be factored into mortgage approvals.

Subscriptions

Many households can cut their regular expenditure by reviewing their monthly subscriptions to gyms or entertainment services they no longer use, but cancelling subscriptions isn’t always easy.

While open banking money management apps already help identify duplicate or unused subscriptions, the use of non-sweeping VRPs by subscription services will also allow customers more control over this common repeat expenditure.

Consumers will be able to clearly see what they are committing to and when, so they can avoid falling into a ‘subscription trap’.

Wealth management

Open banking-powered investment apps have brought wealth management services to a much wider audience by combining low fees with a low barrier to entry – one app has a minimum investment of £1.  

With a complete and up-to-date picture of a client’s assets and liabilities, the traditional wealth management sector is also realising how open finance can reduce processing costs and develop personalised propositions across a wide range of incomes.

Pensions

While pensions were not in scope for open banking, the pensions industry is already making use of the technology to, for example, facilitate faster and simpler payments into plans via pensions apps.

One leading UK pensions provider has partnered with an open banking platform to provide its 1.5 million scheme members with real-time data on their spending and saving across a range of financial products. This single holistic overview of all an individual’s finances was part of the original vision for open banking.

Beyond finance – smart data

Open banking has paved the way to ‘smart data’ and is being delivered in part by the introduction of smart data legislation. The aim of this legislation is to help consumers and businesses navigate complex markets and find cost-effective tariffs for utilities such as energy, water, and broadband, potentially saving hundreds of pounds on bills.

Imagine a world where consumers can quickly and easily compare prices, but also facilitate the switch to a cheaper or more relevant product in a single click. For example, downloading mobile phone consumption data to find a better package and have the price comparison site or provider complete the transfer.

As the UK swiftly moves to a smart data-driven economy, we look forward to seeing the many additional benefits and cost savings it can deliver to consumers and businesses.

Read the guide