By Imran Gulamhuseinwala OBE, Implementation Trustee, Open Banking Implementation Entity
Open Banking has begun to transform the banking world. Whilst it is by no means finished, we believe that 2020 will be the year of increased user adoption, when more people and businesses use an ever-growing number of Open Banking-enabled products. This has the potential to pave the way for Open Finance, which will include more financial products and services beyond just payment accounts.
In 2018, European banks entered a new era as banks were tasked with delivering safe and secure account access to regulated third parties. The United Kingdom’s Competition and Markets Authority (CMA)’s Retail Banking Market Investigation Order 2017 set up the Open Banking Implementation Entity (OBIE) to deliver Open Banking. Since then, we have seen an unprecedented level of collaboration amongst banks, fintechs, regulators and consumer representatives to make Open Banking a reality. There are now well over 100 authorised third parties in various stages of bringing Open Banking- enabled propositions to market.
From our perspective, and that of the CMA, this gives us real confidence that Open Banking is going to continue to grow and deliver on its potential to rebalance the market in favour of consumers. The work of implementing the APIs (application programming interfaces) is not yet complete, and yet one million UK users have already connected their bank accounts using the Open Banking-standard APIs. Most importantly, the number of users is growing strongly, more than doubling in less than six months.
This level of user traction and engagement at such an early stage of Open Banking is very encouraging. As we enter the final stages of implementation, we will see more new and innovative propositions enabled by Open Banking brought to market, which will, in turn, boost user involvement and awareness. These propositions will be instrumental in helping consumers and small businesses manage their money better, benefit from more affordable credit and find better loans.
A great example of our work so far to encourage innovation within the Open Banking ecosystem is Nesta’s Open Up 2020 challenge. The challenge’s aim is to develop innovative solutions that use Open Banking to demonstrate how transformative the initiative can be in shaping how people across the UK manage their finances.
These propositions cover a broad spectrum of use cases, demonstrating how potentially valuable transaction data is. Crucially, the challenge includes options that are helping vulnerable users cope with financial stress and, in time, will provide all the tools needed to make better financial decisions. Over the next year, we expect that more and more users will come into contact with Open Banking as third parties bring their Open Banking-enabled propositions to market.
Today, Open Banking relates only to payment accounts such as current accounts and credit cards. But the core principle of Open Banking is that the data the bank holds on the user belongs to the user and not to the bank. This core principle can and should be applied to other products. In the future, other financial products such as savings, mortgages, insurance and pensions should have their Open Banking moment under the banner of Open Finance. Going forward, users could see all of their financial relationships in one place and conveniently use that information to make better decisions.
We believe there is an opportunity to put users in control of their data, putting them at the centre of their data, and this is a founding principle of Open Banking. Tangibly, however, what does that mean?
In short, if you give users access to their data, then you rebalance the market in favour of the consumer. You enable greater competition between incumbents; you enable innovation from new entrants and incumbents; you enable greater convenience for consumers; and crucially—probably most crucially of all—you enable greater engagement by end users. Lack of engagement in financial services is one of the biggest problems we face as a society, and Open Finance could be a key enabler.
It is encouraging to see that our success in implementing Open Banking and ambitions for the future of Open Finance are attracting the attention of governments and regulators as tools for bringing competition and innovation to financial services. For example, innovations that are already on track include the Pensions Dashboard, which will help consumers track down their pensions and view them all in one place.
With more than 99 percent of the UK payment-account market under a single API standard, the UK is considered to be a global pioneer in Open Banking. It will be interesting to see how Open Banking evolves into Open Finance over time. Preliminary discussions are ambitious in scope, covering savings, mortgages, general insurance and pensions. They also build on the learning and infrastructure of Open Banking to ensure real-world delivery. Indeed, Open Finance will likely be swifter in its implementation than Open Banking, which required significant infrastructure to be created from scratch. Repurposing the existing Open Banking infrastructure can reduce time and cost.
There is a sense of inevitability of Open Finance becoming a global phenomenon. User expectations in a hyper-connected world are exploding, and regulators are increasingly coming to terms with citizens’ data rights. While Open Banking has thus far been largely pioneered by the UK, I look forward to seeing other countries take up the challenge and begin to revolutionise their banking services for consumers. This has already begun in Australia, for instance, which has made great strides in implementing APIs in their banking services under the Consumer Data Right (CDR)—a piece of legislation that applies to all customer data from banks to telecoms.
However, in order to first secure the success of Open Banking, regulators, banks, and third parties need to ensure that the ecosystem remains healthy and thrives. We need to continue to collaborate and guarantee harmonisation across technology, authentication and liability. With these foundations in place, we are optimistic that Open Banking will succeed and pave the way to Open Finance.