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New Payments Initiative
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Aug 2017 - Open banking – the next evolution?

Figures recently released by UK Finance continue to demonstrate the decrease in popularity in the use of cash, with the number of people using cash to pay for everyday purchases in the UK declining by 11% over the past year as growth in the use of contactless cards accelerated.

The downwards trend for cash is in contrast to monthly figures released earlier this week by UK Finance which show 143% growth in contactless payments in June, with consumers continuing to use their cards for lower value purchases.

Nevertheless, despite the decline, cash was still used 25% more often than the second most frequently- used method of debit cards. Whilst the number of cash payments is forecast to decrease by 43% over the next decade with the total value predicted to fall by 23% by 2026, the Chief Economist of UK Finance does not believe that the UK is on the verge of becoming cashless in the near future as, “People will always want to choose the payment methods that best suit them and, for the foreseeable future, in lots of cases that will continue to be cash.”

This preference for cash extends to savings as well. Even though interest rates are at an all-time low, delivering minimal and derisory returns, there is a strong desire amongst UK savers to maintain their funds in cash instead of investing in shares and bonds.

One of the technological developments evolving in the banking market is open banking, which enables savers to choose accounts from many banks and even from many countries using just one overriding account. A company called Deposit Solutions offers an online open banking solution which is already operating in Germany, both as an online product in its own right (called Zinspilot) and via Deutsche Bank.

The service is due to be launched in Britain within the next 12 months.

There are multiple benefits of such a service; for the consumer, not only is everything more convenient with it being easier to both select the best accounts to use and to move money around accounts for the best interest rates, it will also be easier to keep within the FSCS limits for saving with one particular institution. For the underlying banks, it is likely to achieve a reduction in servicing costs per user as it will provide access to savers’ funds without having to either actively attract new savers.

All of the UK’s big banks are apparently considering open banking, either using a service such as Deposit Solutions or developing their own solution. It will be interesting to see how this service evolves over the next few years and whether it is embraced by UK savers. 


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