Steve Kirsch, Founder and CEO, Token

11 Oct 2019

Open Banking and Payments: a Ten Year Outlook

Here’s an unpopular opinion in the Open Banking community: cash isn’t going away anytime soon. There are plenty of consumers who will be reluctant to go completely digital for the next 15 years. Maybe longer.

Open banking and digital money, however, are already very much here. So, what will ignite consumer adoption, and when?

One year from now

This is the easy one. In the lead up to the 14 September PSD2 deadline, we have already seen rapid steps towards compliance from retail banks across Europe. Over the next twelve months, the last few high-street banks that view Open Banking as merely a compliance chore will come around, as the revenue and use-case opportunities become more apparent. This will create increased interest from financial institutions in premium APIs that enable greater functionality beyond PSD2 compliance, for which banks can charge a fee.

One such premium API opportunity is the monetization of customers’ data. Even now, few banks realise that they can create premium data packages and offers and charge both service providers and other banks for access.

We will also see Third Party Providers (TPPs) develop more effective personal financial management (PFM) applications that allow for actionable aggregation – i.e. the ability to move money between accounts at different financial institutions as well as view them within one app. This will drive a dramatic increase in the use of Open Banking services.

Beyond account aggregation, we can expect TPPs to produce better, deeper and more consistent data capture and analysis by consolidating data from merchants. The use of digital currencies for faster and more convenient global payments will increase too.

Merchants will also play a bigger role in consumer education. They will increase customer loyalty with more convenient payment experiences and a better understanding of their customers’ spending habits that enables them to personalise offers.

I expect an explosion in Open Banking globally, with many more regions mandating adoption. Action is already being taken in Brazil, Canada, Mexico and across the MENA region. In Bahrain, for example, five banks are already live trialling services and the UAE is not far behind.

Five years from now

Say hello to a banking system powered by APIs. The use of premium APIs will be standard practice, preventing bank customer attrition through the provision of value-added services.

Bank direct payments will give merchants more freedom to reduce friction in their customer experiences and more control over their cost of acceptance.

By 2024, the payment processing industry will have evolved, and acquirers and card schemes will have adapted their business models to embrace Open Banking. Identity-based commerce will become the norm for consumers, streamlining processes across industries.

I expect to see a number of central banks supporting an official digital currency that can be issued by any bank in the country, all fungible with each other without any counterparty risk. We are seeing the beginnings of this right now with a number of central banks in the Middle East.

The adoption of digital currencies will have increased, with a mixture being used by most consumers and enterprises. This growth in popularity of non-traditional payments will lead to changes in what we perceive as currency, particularly as functionality increases. A key development here will be the increased use of smart tokens. Their flexibility and functionality will allow secure and trackable transactions.

10 years from now

Open Banking is most likely to be the de facto approach, with 100 per cent adoption by financial institutions. Regulators will no longer need to mandate the use of APIs and ‘Open Banking’ terminology will disappear – all banking will be Open.

Bank payments will have made serious inroads on credit and debit cards, and digital money will in many cases be used where cash is today. Payments will be more convenient, more secure, and cost even less to process. Neither cards nor cash will have disappeared entirely though – consumer adoption will take longer to catch up with the tech.

The demise of off-the-shelf banking products may well take place around the ten-year mark, as improvements in banks’ customer data capture will have enabled full commercial roll-out of personalised financial products.

Once the industry has mastered Open Banking payments we will start to see more ambitious use cases, including ones that have not even been thought of yet. A whole new value chain is emerging, and the market will favour those with the vision to embrace it.

Token is a licensed AISP. Its Open Banking platform brings PSD2 compliance to banks and access to bank data and payments for PSPs and developers.