Open Finance – in the footsteps of Open Banking
From regulation to reality.
The Financial Conduct Authority published a call for inputs on Open Finance, building on the principles of Open Banking, the sharing of data which provides new ways for customers and businesses to engage with their money and make the most of it. techUK members gathered on Tuesday 18 February for a roundtable on Open Finance to discuss techUK’s response to the CfI. But first off, what is Open Banking and why should we get on with Open Finance?
Open Banking – from regulation to reality
If you don’t yet know what Open Banking is, now is the time to catch up. Open Banking originates from both the EU second Payments Services Directive (PSD2) and the Competition Markets Authority. To increase competition, Open Banking enables customers to consent to third-party providers (TPPs) accessing their payments account information and/or making payments on their behalf.
From this data sharing ecosystem many new and improved services were envisaged by industry players and regulators, including:
- Automatic product switching;
- Cashflow optimisation;
- Personal financial management;
- Account aggregation;
- Merchant payments using payment initiation services;
- Account data access to inform lending decisions.
Some branded Open Banking a revolution. But implementation of PSD2 across Europe has been challenging and uptake has been slower than expected. Many services have not been fully developed in payments and cashflow optimisation for example.
So why push on?
The number of British people using open banking services through their incumbent banks has surpassed one million, doubling in the last six months. According to the OBIE, 200 million monthly calls have originated from the open banking push which has seen the banks connect to 204 active and regulated TPPs. So clearly there is an appetite for the new and improved services unlocked through Open Banking.
And now we are getting to the stage of the development of use cases. The FCA even notes that some new services not initially envisaged were brought to reality including:
- Financial inclusion;
- Retrospective gift aid claims;
- Protection for financially vulnerable people.
If Open Banking has yet to deliver on some of its promises, it has the potential to provide big gain for customers. According to the ‘Consumer Priorities For Open Banking’ report, consumers could gain £12 billion a year through the project, with businesses realising a further £6 billion in value.
Open Finance, a logical next step?
The value from all these new services comes from data sharing and customers being in control of their data. The more the data the better the services customers will get from open data initiatives.
For customers to get the most from both their data and money, there is a need to extend the scope of Open Banking. A customer’s financial situation is much more than just transactions history, real-time account balances or loan payment history. To fulfil the promise of Open Banking, customers need to be able to securely share a wider pool of data including for example: pension, insurance, mortgages, etc.
From Open Banking to Open Finance there is a clear logical pathway. And for Open Banking to truly take place Open Finance should become a reality.
Delivering Open Finance, the questions to address
If the implementation of Open Banking proved one thing; open data is tough! It takes time to change habits, shakes legacy models but more importantly to technically make it happen.
It’s one thing to design a concept but another to get the data available in a standardised format shared through commonly agreed channels such as APIs. A big job that the OBIE took on in the UK was to develop and deliver the open and common banking standards for APIs as detailed within the CMA Order as well as working with the industry to implement and maintain those standards.
But it is not just about standards. There are many other key issues to address, which the FCA’s call for inputs covers including:
- Value to users;
- Customer journey/experience.
techUK members discussed the opportunities and challenges presented above. techUK will carry on gathering members’ feedback in the coming weeks to finalise its response.
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