Thought Leadership

Potential competition and consumer policy reforms could have profound implications for the future of open finance

The OBIE is a unique repository of insight, expertise, and experience gained from having brought the open banking programme to life in the UK. We are pleased to make this thought leadership available to the broader open banking ecosystem, as part of a new, regular, ‘The OBIE Op-Ed’ series.

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The Government is currently consulting on proposed changes to competition and consumer policy with a view to delivering strong free markets, vigorous competition and high consumer standards. The consultation is largely focused on the role of the Competition and Markets Authority (CMA) and proposed powers for the regulator to tackle consumer rip-offs and bad business practices, but as Alan Ainsworth, Head of the Policy at the OBIE explains, it has wider implications for the fintech sector.

The Open Banking Implementation Entity (OBIE) was created to enable innovation, transparency and competition in the banking sector, ensuring better and easier access to new financial services providers and improved consumer outcomes. It provides the catalyst for nimble innovators (or “FinTechs”) to build products that suit customers’ individual needs and compete with large-scale traditional banking products. 

It’s why I welcome the publication of the Government’s consultation; Reforming Competition and Consumer Policy: driving growth and delivering competitive markets that work for consumers, which closes on October 1st 2021. The Government has framed it alongside their ‘Building Back Better’ messaging as consumer habits have changed during COVID-19, but it also recognises that well-functioning markets encourage competition to drive down prices, offer increased choice and new products, and maintain high consumer standards. It is vital that a rich competitive environment, envisaged in the consultation, flourishes in order for the benefits of open banking, open finance and smart data to be realised in the future. 

Chapter one of the consultation on competition policy details proposals to promote competition to drive enterprise, innovation, growth and productivity which is the key for the future success of open finance. However, the Government is largely advocating for competitive free markets, rightly so, without recognising the merit of pro-competition interventions by Government or regulators, which drove the success of the OBIE. In his independent report on competition policy, published in February 2021, John Penrose MP recognised open banking as a successful pro-competition intervention, now being copied around the world. He added that open banking “can be broadened to improve competition and consumer power in other industries” particularly as the economy becomes steadily more digital in future. 

Penrose is right. Three years on from the advent of open banking in the UK, its position in this field by all measures remains considerably strong. There are over 325 regulated providers made up of 234 third party providers and 91 account providers, with 114 regulated entities that have at least one proposition live with customers. Nearly 4 million UK consumers and businesses are using open banking enabled products. It provides a tangible example of successful competition policy and the importance to “strive to be better and go further”, as stated by BEIS Secretary Kwasi Kwarteng. Open banking has brought competition and consumer policies into the 21st century and created a competitive environment for open banking and open finance technology to flourish.  

It’s why the UK needs to evolve its competition regime further to encourage innovation and entrepreneurships, particularly in the digital space, because of the benefits it provides to consumers, businesses and, ultimately, UK PLCs. Processes aren’t perfect and they need to be sped up so that incumbents can’t slow things down by ‘lawyering-up’ and innovative solutions, such as data sharing, aren’t hindered. 

On data sharing specifically, the Government should require the CMA to develop an implementation plan for encouraging competition through the freeing-up of people’s data, if it is to achieve it’s ‘Global Britain’ priority and the UK’s open banking model is to continue to be copied around the world. The Australian model, for example, gives consumers the right to access not just all their financial data but also their utility, telecoms data and more. In short, Australia’s roadmap allows it to target open data, not just open banking or open finance which the UK is currently limited to under PSD2. 

This implementation plan won’t be out of scope for the CMA either. One of the regulator’s functions is to promote “stronger competition within the regulated industries (gas, electricity, water, aviation, rail, communications and health), co-operating with sector regulators” where open data will be the key. However, it will require a shift in mindset (and possibly pro-competition interventions) from Government and the CMA to speed up processes and encourage the freeing up of people’s data. If successful, the competition benefits will be reaped, unlocking opportunities and innovative solutions to open banking, open finance and smart data.