2024 marks a turning point where open banking payments and digital wallets unite to redefine the future of finance. This will extend the capabilities of digital wallets with open banking capability and set the stage for a more inclusive, innovative, versatile and interconnected financial ecosystem. Beyond the immediate benefits of convenience and efficiency, I believe this convergence holds the promise of addressing longstanding issues in the financial sector.
In the dynamic landscape of modern finance, the impact of open banking payments is undeniable. As of July 2023, a staggering 11.4 million payments have been seamlessly processed, reshaping how millions manage their money and laying the groundwork for a future of financial inclusion, innovation, and consumer empowerment.
Notably, the first half of 2023 witnessed a significant uptick, doubling the volume of open banking payments compared to the same period in 2022. These types of payments are becoming integral for retail customers and major institutions, with options like ‘pay by bank and ‘pay by link’ gaining traction. HMRC, for instance, now collects over 43 types of tax through these channels, signalling a broader adoption in diverse financial transactions, including charity donations, credit card bill settlements, and the funding or top-up of digital wallets.
The growth in open banking payments not only speaks to the efficiency of the system but also underscores its crucial role in facilitating transactions across various sectors. This shift to more modern payment methods has truly become a cornerstone in the financial ecosystem and brings us a step closer to more widespread open finance.
The rise of digital wallets
Simultaneously, we’re witnessing a global shift towards digital wallets. Major banks, such as Wells Fargo in the US and a host of UK-based institutions including Barclays, HSBC, and Monzo, are now offering digital wallets. This expansion of financial services into the digital realm is not just simply a tech trend but a strategic move to enhance user experience and convenience.
Additionally, the likes of Apple Pay’s integration of open banking data into their wallet in the UK exemplifies this trend. Users are now empowered to access detailed account information and make informed financial decisions seamlessly. The collaboration between tech giants and traditional financial institutions underscores the cooperative relationship and interoperability required between innovative financial services and established infrastructure.
The vision for 2024… and beyond
So, what is to come? Simply put, I believe 2024 marks a turning point where open banking payments and digital wallets unite to redefine the future of finance. This will extend the capabilities of digital wallets with open banking capability and set the stage for a more inclusive, innovative, versatile and interconnected financial ecosystem. Beyond the immediate benefits of convenience and efficiency, I believe this convergence holds the promise of addressing longstanding issues in the financial sector.
The integration of open banking payments into digital wallets will play a pivotal role in improving the payment experience and opening up more flexible payment options. The seamless nature of these transactions, coupled with artificial intelligence (AI) advancements, will redefine routine payments as an integral part of the broader customer journey.
AI and advanced payment technologies are not just tools for seamless transactions; they are truly catalysts for change, boosting customer experience. Routine payments, once manual and often inconvenient, are now seamlessly integrated into our daily routines. For example, exiting an Uber without the need for a manual payment.
Undoubtedly, the biggest challenge lies in changing consumer behaviour, this is a complex mix of habit, trust, convenience, and perceived benefit. Overcoming deep-rooted patterns of behaviour requires not just technological innovation, but a united effort to educate users on the advantages of open banking payments. To encourage users to opt for direct bank payments over conventional cards, retailers and vendors must prioritise simplicity and offer a spectrum of payment types to make the process effectively effortless.
This educational aspect becomes even more crucial as we anticipate the shift towards interoperability and a broader acceptance of alternative payment methods. In an interconnected world, simplicity becomes paramount for merchants, offering a spectrum of payment types effortlessly. The interoperability of open banking payments with digital wallets will become a requirement for global merchant and customer acceptance, fostering a financial ecosystem where choices are abundant, and transactions are frictionless.
In 2024, the convergence of open banking payments with digital wallets marks a transformative shift in financial transactions, benefiting of open banking consumers with enhanced security, convenience, and access to a wider range of financial services seamlessly integrated into their digital lifestyles.
Drawing inspiration from Recommendation Six of the Government’s recent Future Payments Review, I agree that the development of an open banking alternative payment journey is essential to provide retailers with choices beyond traditional card schemes. By fostering diversity in payment options, we can aim as an industry to reduce merchant dissatisfaction. This in turn creates a more balanced and inclusive financial landscape.
This recommendation also aligns with the broader vision of open banking – to empower not just consumers but also merchants. This fosters an environment where financial transactions are efficient, cost-effective, and tailored to individual needs. Particularly as we navigate the workings of modern finance, the collaborative efforts of regulatory bodies, financial institutions, and tech innovators truly become increasingly vital.
As we embark on this transformative journey, I believe creating a commercial model for open banking will be crucial for its enduring success, ensuring sustainability in financials for years to come. Ideas echoed in the Future Payments Review. As we move towards a future where open banking payments seamlessly integrate into digital wallets, sustainability encompasses not just economic viability but also ethical considerations and societal impact.
Forging a seamless future
The path ahead of open banking payments and digital wallets is one of convergence, collaboration, and innovation. The huge growth we’ve seen in open banking payments, coupled with the rise of digital wallets, sets the stage for a financial landscape where transactions are not just efficient but integral to the broader customer journey.
The challenges ahead, particularly in changing consumer behaviour, require a multifaceted approach. Education, simplicity, and a diverse range of payment options are crucial to encouraging users to embrace open banking payments directly from their bank. The collaborative efforts of regulatory bodies, financial institutions, and tech innovators will play a pivotal role in navigating these challenges and unlocking the full potential of open banking payments in digital wallets.
In 2024 and beyond, the vision for me is clear – a future where financial transactions are seamless, integrated experiences that empower both consumers and merchants alike. The convergence of open banking payments and digital wallets is not just a technological evolution; it’s a fundamental shift that will redefine how we all perceive and engage with finance for years to come.
About the Author
Stefano Vaccino has over 15 years of experience founding and scaling disruptive startups into successful companies. Named by Business Insider as one of the most important Goldman Sachs alumni who left to lead fintech startups, Stefano brings expertise from investment banking, product development, and technology innovation to his role, setting Yapily’s vision and strategic direction.
