Open Banking for Insurance Payments: Unlocking a Seamless Future

Highlights

The global open banking market is projected to expand from $30.89 billion in 2024 to $38.86 billion in 2025, reflecting a remarkable compound annual growth rate (CAGR) of 25.8%.

Post This
Over 90% of U.S. consumers now use open banking in some form, whether through digital wallets, mobile banking apps, or other modern financial tools.

Post This

The financial services industry is evolving rapidly, with open banking emerging as a transformative innovation. More than just a trend, it provides a secure framework for sharing financial data between banks and authorized third-party providers. As applications expand and adoption grows, open banking is set to reshape how money moves between payers and payees in the insurance industry.

What is Open Banking, and How Does It Work?

Open banking enables the secure sharing of financial data through application programming interfaces (APIs) with the consent of the account holder. But why would anyone share their private banking information with a company other than their bank? The answer lies in the innovative solutions offered by fintech companies, addressing consumer needs like budgeting, wealth management, credit access, and seamless payment experiences. These advancements are powered by the secure ability to view account holders’ banking activity. When using an authorized third-party service, users are prompted via a modal window to enter their bank login credentials, just as they would on their bank’s website or mobile app.

How Open Banking Simplifies Financial Lives

By enabling consumers to manage how their financial data is shared across multiple accounts—from checking and savings to cards, investments, and loans—open banking has paved the way for financial service providers to create more personalized and innovative experiences. On average, consumers hold over five financial accounts, and many manage even more. Amid this complexity, 54% of consumers actively benefit from open banking, using it for financial planning, loan applications, and even tax filing. Open banking empowers consumers while driving innovation in financial services, offering greater convenience, personalization, and transparency.1

The Everyday Impact of Open Banking

Consumers already engage with this technology through familiar account-to-account (A2A) payment systems like PayPal and Venmo. For example, Venmo leverages open banking to simplify bank account linking, ensuring faster and more reliable setup and transactions. Today, over 90% of U.S. consumers use open banking in some form, whether through digital wallets, mobile banking apps, or other financial tools. While peer-to-peer (P2P) payments currently account for 69% of open banking transactions, adoption is rapidly expanding into more complex commercial applications—including the insurance industry.1

Transforming Insurance with Open Banking

As technology continues to redefine consumer expectations, the insurance industry is approaching a pivotal shift. Open banking presents opportunities to optimize and modernize insurance operations. Integrating open banking systems enhances efficiency and mitigates risk, particularly in payment-related operations.

Ben Glock, Senior Director of Product Strategy at Visa, explained in an interview with Nacha that traditional ACH payments can be challenging since most people don’t memorize their account and routing numbers. Open banking solves this by allowing consumers to securely link their bank accounts, authenticate with their banks, and authorize information sharing for ACH payments, including identity and balance verification, thereby streamlining the entire payment process.2

Benefits for Insurers and Policyholders

As open banking becomes more integrated into insurance processes, both insurers and policyholders stand to gain significant advantages, such as:

Reliable Premium Collection

Open banking provides real-time insights into consumers’ financial account activity, like current balances, helping insurers determine if an account can reliably process an ACH debit for premium payments without risking an insufficient funds return. It can also help identify when sufficient funds might be consistently available to cover payments, increasing policyholder retention and continuity of coverage.

Mitigating Claim Payment Risk

Open banking verifies bank account ownership with certainty, ensuring claim payments are sent to the correct payee and significantly reducing the risk of payment fraud.

Enhanced Customer Experience

Open banking simplifies premium payments and claim reimbursements by reducing manual input and accelerating transactions — all while ensuring account holders maintain control over third-party access to their banking information. Instead of searching for a checkbook to enter account and routing numbers, users can simply log in to their bank accounts, reducing friction and enhancing convenience. This seamless experience boosts policyholder satisfaction, fosters trust, and promotes greater transparency.

The Growing Potential of Open Banking in Insurance

Although still in its early stages within the insurance industry, open banking is poised for rapid growth. The global open banking market is projected to expand from $30.89 billion in 2024 to $38.86 billion in 2025, reflecting a remarkable compound annual growth rate (CAGR) of 25.8%.3 This rapid scaling underscores the technology’s increasing adoption and impact.

Ongoing investment and innovation are expected to improve interoperability across platforms and regions, making adoption easier for companies of all sizes. This could lead to more insurance providers integrating open banking into their core systems, paving the way for greater efficiency and customer-focused services.

As open banking adoption accelerates in the U.S., the emphasis is shifting from infrastructure to consumer-driven experiences, giving individuals more control over their financial data.4 The key question remains: to what extent will the insurance industry adopt open banking, and how will it apply this technology to its operations and policyholder experiences?

Challenges and Considerations

Of course, no industry transformation comes without some challenges. Open banking’s reliance on sharing financial data makes strong cybersecurity protocols essential. Insurance companies and third-party providers must prioritize data protection measures to maintain client trust and meet regulatory standards. As open banking adoption grows, standardization across technology platforms and regional payment systems will become increasingly important to ensure seamless implementation.

Understanding the Regulatory Landscape

The Consumer Financial Protection Bureau (CFPB) recently finalized rules under Section 1033 of the Dodd-Frank Act intended to give consumers greater control over their financial data. Banks, credit unions, and other institutions must grant consumers and authorized third parties access to financial information, such as transactions, fees, and account usage. Larger institutions must comply by April 1, 2026, while smaller ones have until April 1, 2030.5

However, the CFPB's recent closure has created uncertainty. Congress could overturn the rules via the Congressional Review Act, and banks have challenged the agency, claiming the regulations impose excessive operational burdens without cost recovery. If rescinded, banks may explore alternative collaborations with FinTechs to share data efficiently. Despite these challenges, consumer interest in open banking remains strong, signaling significant growth potential.6

The Road Ahead: Unlocking the Future Through Collaboration

Open banking streamlines insurance payment processes, ensuring more reliable, accurate, and transparent premium collections and claim payouts. This improves operational efficiency for insurers while enhancing the experience for policyholders.

As the open banking market grows, continued innovation will further optimize insurance payment systems, benefiting both insurers and policyholders. Insurers can scale operations more effectively, while policyholders enjoy more seamless service. Collaboration among technology providers, insurers, and regulators will be key to unlocking the full potential of this transformation and driving future advancements.

Delivering More

Are you ready to modernize your payment offerings to do more for your customers? One Inc provides a cloud-based, scalable payment platform that enables innovation and growth. By leveraging our next-gen technology and ecosystem partnerships, we deliver a simplified, seamless, and elegant customer payment experience. With One Inc by your side, continually adding value, cloud-based digital payment success is achievable. Learn more.

Sources