It has been two years since the competition authority published its final report on the closed shop of retail banking in the UK. That report promised to open the sector to more competition and drive the costs to consumers down. These changes became known as Open Banking and the Open Banking Implementation Entity (OBIE) was created to roll out the changes. All UK banks were required to standardise the way in which their data was stored so that third party apps could access it. This, alongside the introduction of real time payments, direct from banks to third parties, should have opened the banks to both consumer assessment of their charging structures and much more competition.
Open Banking allows consumers to explore their transaction history, compare prices for services and real time payments adds another layer of competition and again, should force costs to consumers down. It should be part of their Financial Wellness. At launch some called this a banking revolution. The UK was the first state in the world to attempt to implement it.
The reality has been rather different.
The change in the way banks hold their customer’s data and the opening up of the control of financial information to consumers should have produced an explosion of new products and services. But it has not happened. The question is: has the Fintech industry been too slow to seize the opportunity or is the disruption being prevented?
The OBIE web site claims that there are indeed 77 entities using API to access the data and provide customer services. But some critics of the Open Banking world challenge this number. The Open Banking Space blog for example, claims that of “a headline figure of 77, there is now a total of 15 with services live in the market”. Questions have also been raised about the speed of implementation by the high street banks. Have they dragged their feet on the EU directive, PSD2, which was the source of the original competition review of retail banking in the UK. Over the last year they were so slow in complying with the need to standardise data that the roll out had to be extended to September 2019. Some banks have also introduced authorisation steps that require multiple actions by the consumers to authenticate the interaction with the third part provider. As one blog put it, the banks have introduced: “Multiple steps, requirements to recall opaque user IDs and static passwords / memorable words, needless repetition of the consent object, reliance on web journeys and the like all feature”. This transaction journey could kill Open Banking before it really has the opportunity to get going.
But there are also problems of consumer response. SMEs and self-employed people have embraced the Open Banking idea. SMEs because it can give them the data they need to compare transaction costs from different providers over time and switch between accounts to keep costs down. The self employed because they can provide financial data for credit agreements and loans quickly and efficiently. Consumers however do not know about the changes. Only four in ten of the 55+ age group were aware of Open Banking in a recent UKGov Poll and just 14% of the 18-24 age group, who might be expected to embrace the new apps, had heard of the change.
There might also be some failure on the part of the Fintech industry to see and seize this opportunity. Open Banking has created the space for the creation of digital only banking that uses AI to manage money, shift providers and reduce costs to a minimum for both consumers and companies. So, consumers can only benefit from this innovation. But the Fintech industry has to come up with more than 15 operational uses for the data and there needs to be much more disruption for the benefits to really flow. Open Banking has not yet failed but three things need to happen urgently if it is not to ultimately flop:
- Government needs to examine the response of the high street banks to the initiative over the last year and ensure that if there was feet dragging, it is not allowed to happen again in the future
- The Regulators need to look at the authorisation journey for transactions. It is no good having transparent date free to be used by third party providers if significant barriers are being erected to slow consumer take up and access of those services
- The Fintech industry needs to raise its game and really embrace the opportunity here for innovation and disruption
The UK has started a revolution and others are following. Hong Kong, Singapore and Malaysia have all published road maps for Open Banking implementation, Australia, the USA and India are exploring it. Once these players come into the field there will be no shortage of TPPs to fill the gap. The UK as early adopter may find itself left behind.