Open Banking: Key Trends for 2024

Open banking is gaining momentum worldwide. Previously, traditional banks held a monopoly over financial data. Now, with consumer consent, they share information with licensed fintech providers. This results in personalized products and a simplified user experience.

2023 was a significant year for open banking. The first draft of the new PSD3 was revealed, giving a glimpse into the future regulation. It also saw several innovative integrations, such as Apple launching open banking APIs for Apple Pay for the first time.

Yet what does the future hold? We look at the critical open banking trends to look forward to in 2024.

Rising Adoption

Open banking adoption is proliferating among businesses and consumers. A total of 9.7 million payments were made using this technology in the UK in June 2023, according to the Open Banking Impact Report. This is 88% higher than a year ago, in June 2022. “We have seen further growth since the cut-off point for this report, with 10.8 million payments made in August 2023,” the report added.

This trend is likely to continue in 2024 and beyond. Consumers and companies worldwide reap the benefits of personalized products and efficient payments. Juniper Research, for example, predicted the total value of open banking transactions would reach $330bn by 2027. That’s from $57bn in 2023, a total growth of 479%.

Lasma Kuhtarska, сo-founder, and Chief Strategy Officer at Noda, explained that the growth is driven by establishing a harmonized regulatory framework. “This leads to increased adoption of open banking APIs and the development of more sophisticated open banking solutions,” she added.

VRP Payments

Variable Recurring Payments (VRP) is another trend gaining traction in open banking. VPRs enable payments of varying amounts at routine intervals. They differ from direct debits as they utilize open banking and offer a more intuitive user experience.

“This mainly benefits subscription-based services, allowing flexible payments based on usage or consumption. VRP is expected to enhance financial flexibility and control for consumers,” explained Kuhtarska.

In late 2022, six of the UK’s major banks implemented VRPs for sweeping, leading to the doubling of VRP transactions within a month, according to Open Banking UK.

While non-sweeping VRPs are currently less common, some banks are experimenting. In 2022, NatWest partnered with three providers to offer VRPs as a payment option. The entire commercial implementation of non-sweeping VRPs is still in progress, and there may be new developments in 2024.

PSD3 & Enhanced APIs

PSD3 is an amendment to the existing PSD2 and is currently in its draft stage. Enacted in 2018, PSD2 mandated European banks to share data with licensed fintech companies (with consumer consent) and therefore established open banking in Europe.

PSD3 is an evolution of the existing principles of data sharing and security. The critical area of improvement is API quality.  The proposals include new requirements, minimum functionality, and measures against high latency. The regulation won’t be finalized until late 2024.

Embedded Finance

Embedded finance is placing a financial service into a non-financial platform or experience. Think of Amazon providing insurance services or an M&S credit card. Embedded finance is becoming more common, and this trend is set to continue in 2024.

“Open banking will enable embedded finance solutions, seamlessly integrating financial services into non-financial platforms,” said Noda’s Kuhtarska. “This will create a more unified and personalized financial experience for consumers.”

Machine Learning & AI

2023 will be remembered for the widespread embrace of artificial intelligence and the popularity of the AI-powered chatbot ChatGPT.  The AI momentum will likely continue in 2024 and beyond, enhancing conversational banking.

“Cognitive computing and conversational banking solutions will power chatbots and intelligent virtual assistants to provide personalized financial advice, answer customer questions, and automate routine tasks,” said Kuhtarska.

Machine learning and AI are expected to improve fraud detection, data analysis, customer service, and compliance within the open banking space.

Final Thoughts

From rising consumer adoption to AI-powered innovation, 2024 is promising exciting developments in the open banking world. Open banking solutions have the­ potential to revolutionize the­ financial services industry. Collaboration among banks, fintech, re­gulators, and other stakeholders remains critical to unlock its full potential.

Try Noda for a new way to accept payments online.