The Green Sheet Online Edition
December 27, 2021 • Issue 21:12:02
Will 2022 be the year of the great bank opening?
By Vanni Parmeggiani
Open banking isn't new. Financial wellness apps—apps that connect directly to people's bank accounts to help them stay financially organized—are an example of open banking that most Americans are familiar with. But open banking has many other applications, and those applications are laying the groundwork for a payments revolution—one that is well underway in other parts of the world.
In the United States, open banking is likely to dominate headlines in the new year, along with other alternative payments technologies—like digital wallets and buy now, pay later (BNPL)—that will continue to gain market share and edge out credit cards, especially among Millennials and Gen Zers. U.S. federal agencies are regulating this space to ensure that U.S. open banking ramps up and delivers consumer benefits as intended.
Seven predictions for 2022
Change will continue in 2022, fueled by shifts in consumer preferences and behavior. Here's what I expect to see in the banking and payments space in 2022.
- The preference for credit cards will continue to decline. Credit cards will continue to see a slow and inexorable decline as a preferred method of payment, driven by the preferences of younger Americans.
- BNPL and digital wallets will continue to gain market share. Not everybody wants a $3,000 credit line to manage. Some people just want $200 that they can pay back in three installments. Younger Americans will continue to drive adoption of BNPL and other digital-first forms of payment that better cater to their needs. In fact, in a recent U.S. Payment Trends Study from GoCardless (https://gocardless.com/en-us/guides/posts/2021-us-payment-trends-report/) 70 percent of American consumers revealed that they would rather use BNPL providers, like Klarna and Afterpay, than credit cards. This increases to 87 percent among Gen Z and Millennials.
- Mobile devices will become the most important form factor in payments. As mobile commerce volumes overtake ecommerce, mobile devices will officially become the most important form factor in payments and allow for a more contextual experience, leveraging location or biometrics in a way that can't be done via the web. They will also provide an even greater opportunity for payment apps and fintechs to embrace open banking standards.
- Real-time payments will gain commercial traction in the U.S. As the technologies that underpin open banking—including both data sharing and payment initiation—gain wider adoption, the first widely available real-time payments products will enter the U.S. market, generating momentum and new use cases and further protecting consumers and merchants.
- The first hybrid fiat-crypto bank accounts will become available. 2022 will be the year that digital currencies gain more traction with mainstream consumers. We'll see the first hybrid fiat-crypto bank accounts in the market, opening new possibilities for payments across legacy and digital currencies.
- We'll see a whole slew of developments in open banking around the world. The U.K. and Australia will launch recurring push payments with a single authorization. Open banking will enable the first frictionless and secure on-file experiences for real-time push payments. This will be a global first that unlocks bank payments for merchants with large member bases that transact frequently but with varying amounts and timing.
In Europe, SEPA will enable more real-time push payments.This year will bring an increase in open banking services and account-to-account payments as SEPA (Single Euro Payments Area) gains traction and enables the instant credit real-time push payment capability and mobile use cases like P2P.
- These advances will foster win-win relationships. In order for open banking to really take off, banks —and especially legacy players—need to see a strong business case to change business as usual. With new developments in open banking, incumbents and fintech partners can work together to unlock new segments, markets and products that open banking enables, for example, by offering bank-branded BNPL products to account holders.
The bottom line
There's a persistent chicken-and-egg problem in the banking and payments space: innovations take hold when they benefit consumers, merchants, banks and all the intermediaries in between. Educating all stakeholders in the ecosystem is vital. We've started to see grass shoots in 2021, but 2022 will really be the year open banking puts down its roots in the United States.
Vanni Parmeggiani is the global director of open banking and real-time payments at GoCardless, https://gocardless.com/en-us, a global leader in account-to-account payments, making it easy to collect both recurring and one-off payments directly from customers' bank accounts. He is a strategy and business development professional with over 15 years of fintech experience. He has deep subject matter and industry expertise in all things payments and a proven track record of driving growth through strategic plans, product roadmaps and lighthouse partnerships. Before joining GoCardless, Vanni led the payments strategy team for eBay as part of a global initiative that delivered over $2 billion in incremental revenue. Prior roles include strategy at Worldpay and Oliver Wyman, where he was a principal in the Payments practice. Connect with him via LinkedIn at www.linkedin.com/in/vanniparmeggiani.
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