The weaponisation of payment infrastructure by governments is not a theoretical risk; it’s a reality. In 2023, the US imposed sanctions on Russia’s Unistream Bank, leading to the suspension of cross-border payment services by banks in countries like Armenia,
Georgia, and Kazakhstan due to fears of secondary sanctions. This disruption affected remittances and financial transactions throughout the region. Such incidents highlight how political pressure can reshape payment ecosystems on a global scale.
Today, European countries face a similar, albeit more subtle, risk. With influential figures like Elon Musk entering the payments space, and the dominance of US-centric card networks, the question arises: What if the UK’s payment infrastructure was targeted
next?
The UK’s reliance on US-dominated card networks is near-total, especially since the domestic Switch scheme was sold to an American company. This leaves open banking as the only viable alternative. But can open banking realistically replace established payment
networks if geopolitical or economic tensions escalate?
This long read will explore the three essential elements needed for open banking to emerge as a credible alternative: consumer trust and adoption, supplier resilience, and product ubiquity.
Building consumer trust and adoption
For open banking to step up as a primary payment mechanism, consumer trust and broad adoption are paramount. While open banking transactions have been growing—exceeding
200 million in 2024—they still represent a tiny fraction of the UK’s total payment volume. For perspective, there were 383 million credit card
transactions in September 2024 alone.
Building consumer trust requires more than improved functionality; it demands comprehensive protection frameworks. open banking Limited is working on protections akin to
Section 75 of the Consumer Credit Act, ensuring that users are safeguarded against fraud and disputes. Additionally, the Payment Systems Regulator (PSR) introduced a new liability framework for
authorised push payment (APP) fraud in October 2024. However, this framework remains in its infancy, making it difficult to judge whether it can truly match the well-established safeguards of card networks.
Strengthening supplier ecosystems
A resilient ecosystem of suppliers is essential for open banking to scale effectively. However, financial instability continues to plague the sector. The recent collapse of
Vyne, a notable open banking provider, underscores the economic fragility of this market.
Two key factors contribute to this vulnerability:
1. Low barriers to entry and competitive margins
The ease of entry into the open banking space has led to an oversaturated market where providers aggressively undercut each other on price. This relentless competition drives down profit margins, making long-term sustainability a challenge. Unlike credit-based
products, open banking transactions carry inherently less commercial risk, which limits the potential for high-margin services.
2. Merchant perception
For many merchants, open banking remains a supplementary payment method rather than a comprehensive solution. Smaller merchants are often hesitant to build separate integrations for open banking when they can access bundled solutions from larger acquirers.
The lack of direct relationships with merchants increases price pressure and raises the risk of being replaced or bypassed.
Achieving comprehensive payment coverage
Open banking’s potential as a genuine alternative to card networks is hindered by significant gaps in usability. Key areas where open banking falls short include:
- Face-to-face transactions: Without seamless in-store payments, such as tap-to-pay functionality, open banking cannot replace cards for everyday retail use.
- Cross-border payments: Limited acceptance for international transactions means open banking is impractical for online shopping from overseas retailers or travel-related transactions.
- Recurring payments: While commercial Variable Recurring Payments (VRP) are being developed, they require complex bilateral agreements between banks. Meanwhile, direct debits remain a reliable, inexpensive, and deeply entrenched system.
Pathways to resilience
For open banking to be considered a robust alternative, several steps must be taken:
- Commercial incentives: Introducing a model similar to interchange fees could encourage banks to promote open banking transactions alongside traditional card payments.
- Enhanced consumer protections: Implementing a liability framework comparable to the card networks’ “liability shift” would boost consumer confidence by clearly defining responsibilities in cases of fraud or disputes.
- Product expansion: Developing a widely accepted tap-to-pay solution is crucial, particularly with Apple’s recent decision to open its NFC infrastructure offering a significant opportunity.
Cross-border interoperability: The UK must collaborate with European schemes like Vipps (Norway), Swish (Sweden), and Wero (EU-wide) to enhance cross-border usability and resilience.
Rethinking payments as critical infrastructure
The UK must recognise payments as part of its strategic infrastructure, similar to energy or food security. Ensuring resilience against geopolitical disruptions requires coordinated efforts between the public and private sectors.
Open banking has made significant strides, but considerable work remains to establish it as a standalone payments ecosystem. Addressing commercial incentives, consumer protections, product ubiquity, and cross-border acceptance will be essential to build
a resilient, self-sufficient infrastructure capable of withstanding external pressures.
If successful, open banking could emerge as a resilient backbone for the UK’s financial ecosystem, reducing dependency on US-dominated networks and creating a robust, homegrown payments infrastructure. By prioritising commercial incentives, consumer protections,
product coverage, and cross-border interoperability, the UK can future-proof its payment systems against geopolitical disruption and economic coercion. Achieving this would not only enhance the nation’s economic sovereignty but also set a precedent for other
countries grappling with similar dependencies.