One of the most fundamental aspects behind the concept of “open banking” is a desire to create stronger value propositions within financial services, towards consumers, by enabling greater open access to banking data. Regulatory forces have strongly influenced the movement of this market; however, commercial factors are starting to push the door even further ajar.

The shift from “open” to “functional” banking APIs is progressing, albeit slower than many had predicted. Nonetheless, the last year has seen strong uptake in value-adding offerings that are being built exclusively on the foundations of open banking initiatives without any legacy tech potentially tripping up the developments down the road.

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Some within financial services have argued that open banking is a solution looking for a problem. Whether you choose to see the problems or not, they do exist and converting them into opportunities is driving much of the innovation we are currently seeing in the industry.

By liberalizing this access to data while simultaneously ensuring stringent oversight in respect to both regulatory and privacy standards, third parties are actively working together across the marketplace to develop and optimize digital financial services that consumers need and want. This is where payments, one of the most foundational of all services within finance, is just now starting to see what open banking can offer and it is not a one-way street.

By building a new and more seamless payments infrastructure, open banking players are creating almost unthinkable alternatives to merchants seeking to minimize transactional costs. By reducing the number of intermediaries and significantly reducing the hurdles between merchant and customer, open banking, can drive down the cost to process transactions. Depending on the revenue model and provider, transactional prices could be anywhere from 20-60% lower than average processing fees today.

This might explain why traditional payment networks have recently started an acquisition and investment surge within the open banking ecosystem, as they rightfully see both the evolving opportunities and threats these new players and consortiums represent.

How is open banking creating a fast lane in the consumer payments journey?

The consumer payments journey is not just about what the customer experiences, it’s very much also about what the merchant can offer. There is a fine balancing act when it comes to convenience and security. Fintechs have strengthened merchants’ abilities to balance on even finer ropes over even larger distances yet there is still room for improvement. The past 18 months has really tested merchants, as the online shift was surging prior to the pandemic, and has only intensified as time has passed. Never have merchants had so many tools at their disposal and this competition for conversion has sparked an intense redevelopment of the payments experience, the most arduous of stops along the journey.

Open banking players have looked at this pain point and said there must and should be an easier way to do this, creating greater convenience without compromising on security.

At Neonomics we decided that instead of getting on the existing highway and building a new lane out of the shoulder of the previous one, we should instead tunnel underneath. By building the equivalent of a payments hyperloop we could offer merchants and their customers a more direct and cost-efficient means of completing the journey. Simultaneous speed and security and here’s the kicker, at a fraction of the cost. Account to account payments is the hyperloop, still in its infancy, yet looking out in the not-too-distant future, we could be looking back and thinking why did we ever travel and pay in any other way?