UK Open Banking Surpasses 15 Million Users, Payments Dominate Activity

Britain's open banking network has reached 15.16 million users, with 2.04 billion interactions in July. Payments dominate activity, boosted by Variable Recurring Payments (VRPs), which are emerging as rivals to cards for subscriptions and bills. The milestone comes as the UK prepares to extend the model with "Smart Data" schemes across energy, telecoms, and retail.

Britain's open banking network has reached a significant milestone, with 15.16 million users and 2.04 billion interactions recorded in July. This marks a substantial increase from the 10 million users reported a year earlier, according to data from Open Banking Limited (OBL) [1].

Payments dominated the activity, with Variable Recurring Payments (VRPs) emerging as a notable innovation. VRPs allow customers to authorize merchants to collect regular sums directly from their bank accounts. In July, VRPs accounted for over 4% of all open banking transactions, with 4.26 million payments, representing an 8.6% increase from the previous month [1].

The growth of open banking coincides with the UK's preparations to extend the model through "Smart Data" schemes. These schemes aim to expand open banking's reach into energy, telecoms, and retail sectors. The UK government is expected to leverage these initiatives to enhance consumer convenience and market competition [1].

The milestone underscores the rapid adoption of open banking in the UK, which has become integral to daily life for millions of people and businesses. From paying taxes to shopping online, open banking has transformed financial interactions. The technology's growth is particularly evident in the mainstream adoption of pay-by-bank services, as seen with HM Revenue & Customs processing £4.7 billion through open banking in January [1].

However, the sector faces potential challenges. The UK government is considering a windfall tax on banks' profits from the Bank of England's quantitative easing (QE) program. This proposal, which aims to recoup £8 billion annually, has sparked a 4% drop in shares of major lenders like Lloyds and NatWest, eroding £6 billion in market value [2]. While the tax has not been officially endorsed, the mere possibility has highlighted the sector's vulnerability to politicized fiscal policies.

Investors have responded to the uncertainty by shifting £2.6 billion into mixed-asset funds and hedge funds, seeking diversification. Additionally, 70% of large institutional investors plan to increase private debt holdings, indicating a strategic pivot toward non-traditional assets [2].

Despite the challenges, the UK's open banking network continues to evolve. The next test will be whether VRPs and commercial pay-by-bank deals can scale, providing consumers and businesses with a genuine alternative to cards and direct debits. For investors, the key lies in identifying institutions that can navigate this politicized landscape through prudent risk management and strategic agility.

References:
[1] https://financefeeds.com/uk-open-banking-tops-15-million-users-as-payments-drive-growth/
[2] https://www.ainvest.com/news/assessing-impact-windfall-taxes-uk-banking-sector-valuations-strategic-risk-investment-opportunities-political-uncertainty-2508/