Open banking is at an inflection point, where positive action needs to be taken to maintain momentum and ensure the benefits currently provided to over three million users of open banking services extends to many more millions of people. Here Alan Ainsworth, the Open Banking Implementation Entity’s (OBIE’s) Head of Policy, explains what it will take to ensure that open banking, fintech development and innovation continues to prosper.
“We pioneered Open Banking, which has now taken the world by storm.”
City Minister John Glen MP
If we look to the very origins of open banking, the objective was to increase competition and choice in financial services, and while many different actors have brought it to life, we cannot ignore the role of regulation in getting it going in the first place.
In the case of open banking, the progress we have made to date has only been possible because (through a combination of PSD2, GDPR and the CMA Order) the CMA 9 have been mandated to implement the standards and implement them well. As the Smart Data Report makes clear, “feedback from those involved in open banking is that mandatory participation is a key step, open banking was around for a decade before it picked up pace and the key impetus was legislation requiring banks to participate and fund an implementation body.”
Fast forward three years, and it’s clear to see how much progress has been made. We have more than 3 million consumers and small businesses who access a wide range of open banking enabled services each month. Our thriving ecosystem of more than 300 regulated Third Party Providers (TPPs), who are collectively bringing innovative new products to market, serves as an exciting example of fintech incubation, development and innovation. Our annual report serves to highlight the journey we have been on to make this happen, and that this progress is by design and not by accident. But we cannot afford to rest on our laurels.
The recent publication of the Kalifa Review of UK FinTech, explicitly recognises open banking as a leading UK success story. In his foreword, Economic Secretary John Glen MP stated, “We pioneered Open Banking, which has now taken the world by storm.” This view is also backed by the Financial Conduct Authority (FCA), in its feedback statement on the future of open finance, and by the Department for Business, Energy and Industrial Strategy, as part of its Smart Data report.
Yet for all these plaudits we stand at a critical juncture, as decisions have yet to be taken about how open banking will be managed, monitored and supervised. Out of the many proposals that have been put forward, it is positive to see overwhelming support to put whatever entity we evolve into on a more permanent footing. However, there are some real gaps in what has been proposed thus far, that if not addressed will have worrying and far-reaching consequences.
On March 5, the CMA launched a consultation on the future governance of open banking. In his consultation submission, the OBIE Trustee Imran Gulamhuseinwala outlined a proposed model for the future governance of open banking that satisfies the CMA’s four specified priorities, that the new service model is independently led and accountable, adequately resourced to perform the functions required, dedicated to serving the interests of consumers and SMEs and sustainable and adaptable to the future needs of the ecosystem. The CMA is soon to publish all of the consultation responses, while a formal decision is expected in early June 2021.
While everyone involved in the evolution of open banking will all be invested in seeing this become a great success story, one that we can look back on in a decade with pride we know that although we have much to be proud of, we are still pretty early in our journey.
Firstly, as we know open banking didn’t happen overnight – in the years since PSD2 made open banking a regulatory requirement, the OBIE has been hard at work getting the right foundation ready. Yet there seems to be a wrong assumption that in terms of the implementation we are largely finished and are ready to evolve to a new phase. This is simply not correct. More work needs to be done – not only to get the roadmap complete and successfully implemented but to finish implementing the dashboards and to finish our work on making it easier for people to sweep money between their accounts. Even if we only looked at completing the roadmap as we are today, this would still take us well in 2022.
Secondly, for open banking to solve the very problems that mandated its existence, we must ensure the continued quality of implementation and that the CMA9 continue to deliver on their obligations. We cannot ignore that this is a competition remedy and needs to be managed as such. The OBIE Trustee is proposing that the role is split into two, with the continuation of a Trustee, in addition to the Chair of the new entity. This would give an individual the teeth to ensure that the CMA9 continues to deliver high quality API’s that allow the TPP’s to develop products and that we address customer experience issues. Given that two out of every three customer journeys fail we are simply not there yet.
Thirdly, when we look at ecosystem stewardship, there are a number of gaps. The CMA wants to see a vibrant, healthy competitive market that ensures positive consumer outcomes. Our statistics evidence that we are delivering improvements for more than 3 million customers and growing. We only have to look at the fact that we have more TPP’s in our ecosystem than the rest of Europe combined to see what can be achieved when ecosystem stewardship provides incubation, an environment to test products and to iron out issues. For that to continue, proportionate and logical funding provisions need to be established. The CMA9 should not have to pay the lion share – the Trustee has put forward a funding model that levels the playing field based on an FCA style levy, which means a contribution based on size, and doesn’t price out and therefore stifle innovation of smaller start-ups.
Lastly, given all of the work and investment that it has taken to get open banking to where it is now, it would certainly be a missed opportunity if all of the learning and development is not utilised as open finance and smart data evolve. Yet, I have personally watched as repeated attempts at driving progress in this space have failed because of a lack of resource and the continued misalignment of incentives. Lessons from midata and the onset of PSD2 itself – coupled with the failings of jurisdictions outside of the UK to capitalise on the new regulatory environment – prove that an authority figure, as well as dedicated resources is required.
In conclusion, as I said at the start when it comes to open banking in the UK, we are far from finished. We have been tasked with delivering a public good – in the case of open banking that would mean 15-20 million adults using open banking services. I wholeheartedly believe we are on track to deliver this, and while I welcome any steps to put the governance of open banking on firmer footing, let’s just collectively (and strategically) ensure that what comes next allows us to keep moving forward, to keep building, and crucially, to keep growing.