Insight Type: Thought Leadership

The UK government’s commitment to deliver Smart Data legislation through the Data Protection and Digital Information (DPDI) Bill is a significant milestone towards creating a world-leading open data economy. It is an essential piece of legislation that will help extend and build on the benefits already experienced by open banking users to date.  

Open banking is a financial innovation that allows users to share their current account data securely with authorised third-party providers (TPPs). These TPPs can then use this data to offer personalised financial services, including money management tools, access to cost-effective credit, and alternative payments. 

Smart Data legislation will allow the government and regulators to extend open banking and to mandate new Smart Data schemes in other sectors, including energy, telecoms, pensions, mortgages, and insurance. This should create competition and deliver better outcomes for consumers and small to medium-sized enterprises (SMEs) alike.

By using data held by our service and utility providers, consumers will have a holistic overview of their energy usage, finances, and phone and broadband usage and costs, for example. They will also have access to tailored recommendations of products and services that may better suit their needs, potentially finding new deals and offers with alternative providers.

These legislative and regulatory reforms come at a critical juncture when many people in the UK are struggling to meet the rising cost of living. With 15 per cent of people in the UK having no savings, and 18 per cent of UK adults needing debt advice, smarter money management and access to tailored services like open banking and other Smart Data schemes are essential. 

Smart Data is expected to support consumers with protected characteristics such as disability and race, especially those who are also financially vulnerable. It will change the way we look at data, improving individual’s engagement with markets and increasing customer empowerment. SMEs that currently rely on open banking technology to accurately oversee their finances and keep late payments in check, will also get access to the benefits of Smart Data. 

The legislation will provide a foundation for a regulatory framework that should enable new services and products to emerge while protecting the interests of consumers and SMEs. This would lead to greater competition, lower costs, and more choice for customers. It will also aim to integrate an even wider range of financial services, including loans, investments, insurance, and more, moving us closer to realising Open Finance. 

However, the implementation of any new regulatory framework can pose challenges. The good news is that we can learn from the successful approach used for open banking, one that created a centralised implementation entity that delivered a defined Roadmap and focused on fostering collaboration between stakeholders.

Open banking has demonstrated that it’s possible to encourage competition and innovation in the financial services industry while protecting consumers’ interests. 

It is essential to ensure that the benefits of a Smart Data framework are evenly distributed across society. The regulatory framework must include measures to ensure that everyone, regardless of their socio-economic background, can access and benefit from the new services and products that emerge. The challenge lies in ensuring that the benefits of innovation are accessible to everyone. 

It is also essential to progress the Smart Data legislation at pace. The government has worked hard to make Smart Data a reality, but it is now essential for parliamentary time to be dedicated to getting the legislation adopted. Other jurisdictions, such as Australia and Singapore, are progressing similar initiatives, and progress needs to be made if we are to ensure the UK remains competitive and a world leader in this field.  

Other countries are already moving forward with similar initiatives, and the UK needs to act if we are to remain world leaders and build an innovative open data economy. Failure to do so could result in the UK falling behind its global competitors and missing out on the economic benefits of innovation. 

In conclusion, the Smart Data legislation will be a significant step forward in improving consumer outcomes and supporting SME growth. It has the potential to contribute to economic development and promote greater financial inclusion. With the proper safeguards and regulatory framework, Smart Data can transform the way we manage our financial and economic lives and promote greater financial well-being for all. 

By the time 2022 ended, HSBC, Santander, NatWest, Nationwide, Lloyds, and Barclays (six of the CMA9), implemented and were able to offer variable recurring payments (VRPs) for sweeping – where consumers or businesses move money from one of their accounts to another (‘me-to-me’ payments).

This significant open banking milestone was reached by the open banking ecosystem coming together to collaborate on the launch of this innovative new payment technology in a controlled way.

The result meant that Payment Initiation Services Providers (PISPs) – such as banks and fintechs – could offer their customers sweeping propositions with the vast majority of current accounts in the UK.

Two months later where are we?

In January 2023, just one month after all the firms above went live with the technology, we saw a promising doubling of the number of payments made using VRPs for sweeping functionality. While we continue to work with the rest of the CMA9 to implement VRPs for sweeping, we understand that some major PISPs are now poised to launch new sweeping propositions.

Commercial opportunities for PISPs

VRPs for sweeping represent a compelling opportunity for PISPs, which can offer sweeping propositions to their customers. For instance: 

Benefits of VRPs for sweeping

As consumers and small businesses face a challenging economic environment and increasingly costly credit, VRPs for sweeping can help in the following ways:

Looking ahead to non-sweeping use cases

While only VRPs for sweeping are mandated for the CMA9, many eyes are now on VRPs for non-sweeping. This is a game-changing opportunity which will make repeated payments such as monthly utility bills more convenient and efficient, by varying the payment amount and the account intervals in a way that suits the customer. Last year, one major UK retail bank launched VRPs for non-sweeping with third-party payment providers, partnering with an international food charity and lettings management platform.

The use of non-sweeping VRPs by subscription services will also allow customers more control around repeat expenditure. By seeing what they are committing to, and when, they can avoid falling into the ‘subscription trap’ – paying for duplicate subscriptions or subscriptions they no longer use.

Some retail payment uses may require other functionality issues to be addressed before they can become a reality. A number of these have been flagged in the Strategic Working Group report, The Future of Open Banking in the UK. Examples include the repayment of mortgages and consumer loans (e.g., moving excess funds to help repay debt, shrinking larger debt faster), or funding an investment account, foreign exchange account or a digital wallet.

Christian Delesalle, Head of Participant Support, OBIE, said: “We are delighted to see VRP propositions — sweeping and non-sweeping — moving from theory to practical use, and we look forward to seeing other uses of this new way to pay deliver benefits to consumers and businesses alike in 2023 and beyond.”

In December 2022, the OBIE completed the managed rollout of variable recurring payments (VRPs) for sweeping, marking the final milestone in the Competition and Markets Authority (CMA) Roadmap which brought open banking to life five years ago.

As adoption continues to grow – there are now more than six million active users of open banking-powered apps, products and services – we ask experts from the industry, regulators, and trade associations to explore the opportunities ahead. You can read the complete article here, but here’s a quick summary of their comments:

Janine Hirt, CEO of Innovate Finance, predicts that open banking will continue to transform the payments and lending landscapes and the key role it will play in reducing financial services fraud, while Kate Fitzgerald, Head of Policy at the Payment Systems Regulator, sets out how open banking competition regulation can help users of payments systems, both consumers and businesses.

Nicole Green, VP Product Strategy & Operations at Yapily explains what she thinks will be the game-changing use cases for VRPs for sweeping and non-sweeping.

Helping tackle cost of living challenges

David Fagleman, Advocacy Associate at the Finance Innovation Lab, highlights the role that open banking can play in supporting financially vulnerable consumers and Dr Mike Granleese, Deputy Managing Director, Corporate Reputation at Ipsos UK, explains how open banking data and services can help consumers manage their finances as they face cost-of-living challenges. Independent Consumer Expert Faith Reynolds also highlights how open banking gives providers the opportunity to embed income maximisation tools, to make sure people can quickly access all the support they need.

Business support

Martin McTague, National Chair of the Federation of Small Businesses, believes open banking can support the UK’s SMEs in staying on top of their finances and accessing useful business insights to improve their forecasting.

Simon Cureton, CEO of Funding Options, expects open banking to become a requirement for any form of consumer or SME debt finance, as it offers near real-time transparency of the borrower’s financial position. This can help individuals and businesses to make more informed decisions prior to applying for finance.

Open finance

Looking ahead to open finance, Kevin Floyd, Product Owner Open Banking Channels at Lloyds Banking Group, lists some of the expanded opportunities it offers, these being:

In terms of data, Ghela Boskovich, Head of Europe at FDATA, believes the demand for services that help customers better manage their money in a recession means service providers will want access to more than just payment data, and so savings and lending data will become increasingly important.

This is echoed by Nilixa Devlukia, Chair of the Open Finance Association, who explains that open finance presents an opportunity for consumers and businesses to gain control and visibility of all aspects of their financial lives – savings accounts, investments, loans, pensions, and mortgages.

Looking to the future

In conclusion, OBIE Chair and Trustee Charlotte Crosswell pays tribute to the CMA9, fintechs, regulators, policymakers and other key stakeholders in the open banking ecosystem which have collaborated to successfully deliver this world-leading open banking framework.

Charlotte goes on to highlight that the UK’s position as a global leader in the open banking sector represents a real opportunity for future digital trade and for the UK to share the expertise that made the implementation of our trusted open banking framework so successful.

If it’s autumn, it must be Open Banking Expo in London. Last week saw a vibrant international crowd of fintech firms, banks, service providers, policy specialists and more descend on the Business Design Centre in Islington to talk all things open banking.

Like last year’s event, the mood was optimistic, as the ecosystem and industry acknowledged the considerable progress made, and demonstrated the appetite to capitalise on the momentum to push open banking further into the mainstream.

In his opening remarks, OB Connect’s Chief Strategy Officer Simon Lyons pointed out that use cases will drive adoption, and highlighted some of the technology’s successes so far:

When the Crown Commercial Team integrates open banking as a way to service multiple use cases encompassing AISPs/PISPs in its Dynamic Purchasing System next year Lyons predicts open banking will play an even greater role in government finance.

Business finance
SME finance was a hot topic at the event, and the OBIE’s Ecosystem Engagement Specialist, Connie Castro Feijoo, was part of a lively panel discussion exploring how open banking could better serve the UK’s small to medium-sized businesses.

Simon Cureton, CEO of Funding Options pointed out that businesses applying for credit through its lending platform could see an application for funds approved in 20 seconds, while in some instances it can take just 18 minutes from a business applying to seeing the physical funds in their bank account.

Michael Green, GM, Partnerships UK and EMEA, at accounting software provider Xero cited open banking as a “really important tool” that’s “saved hundreds of thousands of businesses a shedload of time” that would otherwise have been spent on administration.

He added that the real-time insights into cash flow and performance that open banking provides are invaluable when times are tough, as well as the ability to get paid on time. Xero offers a ‘Pay now’ button in its software, and he pointed out that businesses can get paid twice as fast by asking customers to pay this way. This was echoed by Tom Beckenham, founder and CEO of payments portal Comma.

The panel agreed that all these small incremental changes combined could make a big impact on perennial business problems, but that there are still challenges in educating businesses about open banking’s potential, and its ability to deliver improved productivity and financial resilience.

“While we know that 50 per cent of SMEs currently use open banking-enabled services, there’s a lot of work and education to do to get the additional 50 per cent using it as well”. Connie Castro Feijoo, OBIE Ecosystem Engagement Specialist OB Expo, London 2022

Castro Feijoo concluded that “while we know that 50 per cent of SMEs currently use open banking-enabled services, there’s a lot to do to get the additional 50 per cent in as well”.

Variable recurring payments (VRPs)

VRPs were also centre stage, as Tom Greenwood, CEO of Volt, declared that VRPs were sounding the “death knell of Direct Debit”. He said: “If financial institutions and fintechs work together, we have a tremendous opportunity to create a balanced, practical approach that will deliver on the promise for VRP to enhance consumers’ and businesses’ financial lives.”

Elsewhere, NatWest announced that it had partnered with Token to offer the UK’s first VRPs for non-sweeping use cases, and that these payments were made by NatWest customers to international food charity, Charity Right (implemented by GoCardless), and lettings management platform Pink Chilli (implemented by TrueLayer).

Token also confirmed its plans to make VRPs for non-sweeping services available through other UK banks.

Cost of living

On the Open Banking for Good Stage, the increased cost of living provided the backdrop to several debates.

First off was ‘Open Banking and the cost of living crisis. A force for good’, which highlighted some of the key challenges faced by financially vulnerable and excluded individuals.

James Pursail, CTO and co-founder of consumer lending platform Plend, highlighted that using open banking data for credit assessments opens up a line of affordable credit – “smarter, safer loans” – to people who might otherwise not meet the strict criteria required by other lenders, as well as the opportunity to consolidate debt.

David Fagleman, from the Finance Innovation Lab (FIL), pointed out that there is also a “once in a lifetime” opportunity for open banking to “help people get more out of the money that they do have”, including helping people to save (using the open banking tools that are out there), offering a financial guidance service, and offering support for informed pre-arrears on mortgage forbearance.

This echoed some of the sentiments conveyed in the ‘Beyond banking. The future is smart data’ panel. Moderator, Faith Reynolds from FIL, kicked off the session by commenting that while payments are usually the priority for open banking, data sharing is also hugely important for the industry.

Gavin Starks, Founder of Icebreaker One, said that the common standard in the open banking space should also be applied to the energy sector, and that this would greatly improve the affordability of citizens’ energy tariffs and help to reduce bills.

Charlotte Crosswell, OBIE Chair and Trustee, reiterated that open banking can help consumers build a better credit profile, pointing out that it is “expensive to be poor”, and that financial inclusion should be a key driver of the open banking industry. She added that elements of open banking, such as VRPs, can also be a way to address financial inclusion and the ‘poverty premium’.

Conclusion

There’s a strong sense from across the industry – and beyond – that open banking is at a tipping point, and that we need to continue to collaborate to ensure that momentum isn’t lost as open banking transitions to open finance.

Like many organisations, many of the UK’s charities and social enterprises have been hit hard by the pandemic. Nearly two years of on-off lockdowns hit face-to-face fundraising events – a key source of revenue for many charities – and cash donations. Some struggled to retain volunteers, while others faced an increase in demand for their services.

Recent research from The Charities Commission reported that 60% of charities in England and Wales saw a loss of income, and one in four charities with incomes of less than £10k paused their activities completely during the first lockdown.

As charities look towards the post-Covid fundraising landscape, our new publication ‘The charities guide to growth through open banking’, highlights the opportunities offered by open banking payment solutions.

In the guide, we set out how third sector organisations can:

Challenging perceptions

One of the barriers to introducing any new payment or donation method is the perception that it will be expensive and disruptive to day-to-day processes and tasks.

However, the reality is that most open banking applications are free to use and can be up and running within a few hours. All that’s required is an internet-ready device and an internet connection.

How can open banking help cut costs?

Traditionally, a significant portion of donation revenue goes towards individual transaction fees and annual service hosting costs. According to the business website, Startups.co.uk, each card transaction takes a typical fee of between 1-3% meaning processing costs can quickly add up.

In contrast, the cost of receiving payments via open banking tends to be far lower compared with credit or debit cards, online or in-person. This means more revenue going directly to their funds.

There is also often near-instant settlement and access to any money coming in. Thanks to the UK’s retail payments system, Faster Payments, transactions are typically completed within a few seconds meaning donations are on account and available typically more quickly than card-based payments.

What open banking can offer your supporters

Open banking can also present more flexible opportunities to donate, including micro-donations, where donors can opt to round up transaction amounts and give permission for the surplus (within agreed limits) to be transferred to their chosen charity.

The pandemic has also seen an increase in the use of QR codes, and using a QR code on a leaflet, magazine or billboard means a charity’s donation journey can start anywhere, without the need for specialist apps or a point-of-sale machine.

There are some additional benefits of using open banking too.  

Lack of middleman cuts costs and drives donations up

According to the charity platform JustGiving, it has found that, with no middleman, it is seeing savings of 50%, as well as the displacement of more expensive payment options, such as mobile wallets.

And the ability to donate direct – with the knowledge that all the donated funds will be going direct to the supporter’s chosen cause – has, in some instances, led to an increase in donations as well as cost savings.

The average transaction value is almost twice the amount of a regular donation. We feel it’s an indicator people will choose the open banking option when making large donations, for security and fraud reasons.

Oliver Shaw-Latimer, Director of Global Fintech, JustGiving

Shaw-Latimer concluded: “We underline open banking as our preferred [payment] method. It’s quicker and cheaper, it’s mobile-centric, and the flow is smooth. Ultimately, once you’ve picked your bank, you’re set.”

Read the ebook

In 2021 we witnessed significant growth in the adoption of open banking. We saw more participants, more end users, and certainly lots more publicity about the benefits it can bring.

But what will 2022 bring? We asked a few experts from across the open banking ecosystem to give us their predictions for what we believe will be another important year.

We share their thoughts below.

What will take open banking to its full potential in 2022?


HMRC team

“Effective collaboration to turn open banking data into services that are good to use and offer real value to customers and businesses. HMRC wants to be a big part of that, and we will be inviting interest in a number of open banking-related proofs of concept, such as splitting VAT at source.

Following the success of implementing payment initiation services, HMRC is also looking to maximise the benefits of open banking by exploring the application of account information services. We are keen to continue engagement with the OBIE, Pay.UK and the Bank of England to explore how we can further align our strategic activities.”

Oliver Shaw-Latimer, Head of Global Fintech, JustGiving

“From our perspective, it’s VRPs. It’s huge for us. Replacing Direct Debits eventually would be awesome, because it’s all tech and it’s more flexible – it’s instant payments. And recurrence is huge for the charity sector.

The other one is request-to-pay, which is sending out pre-invoiced requests for payments to our suppliers.

A lot of corporates hand over funds so we can disburse them to a wider network of charities. The ability to send them that ask, and have them respond to that ask via the open banking network kind of closes the loop, without having human steps in the processes. That’s a big one for us as well.”

Francis McGee – Consumer Representative, OBIE

“2022 will be a transitional year. The implementation phase will end, and we need new structures that make sure open banking continues to be done well for consumers, and run well for the ecosystem.  Let’s start 2022 by signing up to five principles to make that happen:

Fliss Berridge, Director and Co-Founder, Ordo

“Open banking has made life easier for businesses and consumers making and collecting single payments. The gap that’s left is to cover VRPs – regular repeated payments like monthly utility bills, and ad hoc repeated payments to the same retailer (in-person or online).

Open banking makes these payments much smarter, more convenient and efficient – a ‘smart Direct Debit’ if you like. VRPs can be set up in minutes rather than weeks, payment mandate parameters can be changed dynamically, right up to the point of irrevocable payment, meaning businesses and consumers can respond to life events in real time. Payment transfers are in real time, without long processes and paperwork.

Once open banking is used for our regular bills, we’ll wonder how we ever got by waiting.“

Hetal Popat, Open Banking Director, HSBC Group

“During 2022 I expect we will see extensions from open banking to wider passporting of data from and between financial institutions. This will unlock enormous value for both consumers and businesses, and will be a pro-competitive force in many other industries outside of financial services.

In parallel, the launch of VRPs will enable entirely new use cases to be fulfilled, embedding payments into wider customer journeys. The industry needs to co-ordinate in order to bring this to market, and the OBIE is well placed to facilitate this.”

Billy Helm, Marketing Executive, Ecospend

“2022 will be about consolidation and sustaining growth. Ecospend’s partnership with HMRC proves that, where there is consumer demand and an intuitive flow, the technology works well at scale. 

For open banking to reach its potential, consumer education will be vital. Also, we need to be realistic that this will not apply, in the short term at least, across every payment setting but will always be part of a mix.

It’s perfect when the consumer has to pay a bill or when fast delivery of a product isn’t a prerequisite. Aligning with the banks will be crucial to broaden the opportunities, especially to ensure industry-wide consistency around the settlement status of payments.”

Paul Lloyd, Co-founder and CMO, Snoop

“We need a broad set of scalable propositions that make people’s lives easier. HMRC’s adoption of open banking is a good example. PensionBee and Plaid partnering to turn a two-week pension contribution process into something instantaneous, while helping people save more easily for retirement is another.

And the work Snoop is doing to help make people better off is another example. With Snoop, every customer gets a unique money management experience based on their open banking data. Hyper-personalisation and the ability to connect people with relevant and personalised money insights at exactly the right time enables the app to be relevant, practical and useful in people’s everyday lives. We’re beginning to see just what a profound impact it can have.

The implementation of VRP will be another huge moment for open banking in the UK. This, combined with the scrapping of 90-day reauthentication, will play a significant part in unlocking open banking’s potential.”

Mark Chidley, Independent SME Representative, OBIE

“As the implementation phase of open banking concludes it is essential that the CMA and its fellow regulators (the Financial Conduct Authority, the Payment Systems Regulator and the Information Commissioner’s Office in particular), orchestrated by government, ensure that:

“We have been encouraged by the CMA’s 5 November open banking update to believe there is every chance that these important outcomes are delivered in the broad interests of the people and small businesses that open banking was always intended to benefit.

“We eagerly await the CMA’s consultation response and wider regulators’ statement in the early part of the new year.”

Nick Levine – Chartered Accountant and Fintech Consultant

“VRPs will play a key role. The benefits of smart overdrafts and intelligent savings are highly compelling and made possible with the introduction of sweeping via VRPs. I expect many people to engage with open banking for the first time through these tools and for trust and confidence to continue to increase.”

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.

Contact press@openbanking.org.uk to request coverage of a specific topic.

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. 

The long-awaited requirement from the Competition and Markets Authority (CMA) mandating the UK’s nine largest banks to implement VRPs for Sweeping is going to transform payments and gives consumers and SME’s greater financial control, explains Imran Gulamhuseinwala OBE, Implementation Trustee at the Open Banking Implementation Entity. 

Contact press@openbanking.org.uk to request coverage of a specific topic.

While sweeping may not be a term that rolls off the tongue of the average consumer or small business, eventually it will become an everyday banking term that we all use regularly. Simply put, sweeping is the automatic transfer of money between a customer’s own accounts, such as moving excess funds into a separate savings account or using them to repay a loan or overdraft account to reduce the cost of borrowing. We like to think of it as the smarter and more consumer-friendly version of direct debit payments or card on file.

It is fair to say that the biggest transformations in the payments space have so far been regulatory-driven (think faster payments), and thanks to an OBIE-led consultation and subsequent recent decision by the CMA, the next big opportunity is for the market to build smarter payment solutions on the foundations laid down by regulation, namely Variable Recurring Payments (VRPs) for Sweeping.  

We’ve been awaiting this mandate since starting work on this in 2017. We are now on standby to implement this by the end of this year. We are especially delighted as this is the last major piece of functionality to be delivered under the Open Banking remedy. 

The CMA has mandated the CMA 9 (who have a combined market share of over 90% of the UK’s consumer and small business bank accounts) to implement VRPS for sweeping, and stated that: “Making effective provision for sweeping is an important element of the open banking remedy and it is important that sweeping provisions include the ability to move funds out of current accounts into accounts earning a higher rate of interest, and conversely enables customers to access alternative and cheaper sources of short-term credit.” 

VRPs are the plumbing to allow the automatic transfer of money between accounts using open banking.  The payments have to be within the permissions set by the customer (frequency of payment, max amount per payment, total maximum amount and end date of the permission).   

This means that VRPs can be used not only to power the development of Sweeping solutions but potentially also as a basis for smarter finance. This would mean no more subscription traps and provide a way for customers to stay in control in a future world of embedded smart payments. Imagine, if you will, washing machines that automatically reorder detergent or electric cars that charge when the price is low.

The Open Banking Implementation Entity (OBIE) has played a key role in helping Sweeping come to fruition and has long campaigned that VRP’s are the best way to deliver them. The OBIE’s mission is to drive competition, innovation and transparency in UK retail banking and under our stewardship position, we are now able to help set the foundation for smarter payments, enhance customer journeys and improve financial wellness for millions of consumers. 

Following the OBIE’s consultation phase on VRP and Sweeping earlier this year, the open banking implementation Trustee wrote to the CMA, sharing the consultation recommendations and formally recommending that the CMA 9 be mandated to implement VRP’s for sweeping.  

In making this ruling, the CMA has agreed with our view that Sweeping should be widely available to the market and that existing payment methods are unsuitable to deliver it effectively. Through the consultation, we found and highlighted that Sweeping unlocks significant value for consumers and SMEs, including: 

Sweeping is a public good, and we welcome the CMA’s decision to make it available to consumers. The solution uses a more secure and cost-effective payment alternative, massively improving the digital buying experience through increased convenience, transparency and security.  

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.

Contact press@openbanking.org.uk to request coverage of a specific topic.

The role of digital identity in promoting access to financial services in the UK, by Fiona Hamilton, Head of Standards at the Open Banking Implementation Entity (OBIE).  

Digital identity has long been a policy puzzle which the UK, both Government and industry, have tried to piece together. The ability to determine an individual’s identity remotely and securely has arguably become ever more critical against a backdrop of rising digital fraud. But what exactly constitutes a ‘digital identity’, why is it important, and what efforts have already been made to establish the infrastructure, standards and common framework that underpins this policy objective? This blog sets out some of the reasons why adopting a consolidated approach to digital identity policy may provide the path forward to safer and more secure financial access for all UK citizens.  

Covid-19 Trends 

Covid-19 has brought a range of unprecedented challenges to our day-to-day lives, and while social distancing has driven change in all sectors of society, it has impacted the financial services sector and consumer retail banking in ways never seen before. A study by the consumer choice brand Which? found that more than 500 bank branches have closed in UK towns since the start of the pandemic, this is despite the Financial Conduct Authority (FCA) urging banks to ease cuts during COVID-19. As a result, we have seen an acceleration of the existing trend towards digitisation within financial services. For example, six million people downloaded a banking app for the very first time, during the first month of lockdown – which equates to 12% of the UK’s adult population. 

Further evidence of the pandemic serving as a catalyst towards digital adoption is evidenced by the 40% of consumers across France, Germany and the UK who claim it has changed the way they bank. To support this digital revolution in financial services, is the concept of open banking, whereby individuals can permit regulated third parties to access their data through API’s (Application Programming Interfaces). This in turn unlocks better, more personalised products, which in turn can then improve the overall effectiveness of the UK’s banking sector.  

One aspect within financial services which stands to gain from the real-time sharing of customer data is remote identity verification over digital channels. Indeed, creating a robust digital identity which offers customers the flexibility to share their identity attributes may go some way towards countering the rising tide in digital fraud, which according to Onfido’s recent Fraud 2020 Report increased by 40% during the COVID-19 Pandemic. 

 What is digital identity and why is it important? 

To understand the concept of a digital identity and its relevance to financial services, we must return to first principles. Our identity refers to any number of attributes that relate to a person. For example, on our birth certificates these may include identifiers such as our name, date and place of birth. This becomes our ‘legal identity’. However, over time we are also imbued with Government-issued forms of identity, for example a passport or driver’s license (which also qualify as photo-id). Added to this we may also require a ‘proof of address’- a form of identification often issued by a trusted institution such as a bank.  

It is using these forms of identification which predicate much of our access to financial services, and it is in this context where traditionally paper-based forms of identity can be replaced in a digitised world. This is especially important given there are still 1.3 million people in the UK without a bank account. Indeed, in written evidence to the Treasury Select Committee’s Consumer Access to Financial Services publication, on the potential barriers to opening a bank account, the FCA mentioned “consumers may have difficulty proving their identity, for example, those with no permanent address or who move often, those who do not have a passport or driving licence or UK paper utility bills in their name”.  

It may therefore be suggested that a digital identity (or improving digitised forms of identity) may reduce the friction inherent in accessing financial services, driving UK efforts towards enhancing financial inclusion.    

Digital identity in the UK 

In the UK, several initiatives have been launched on digital identity, and it may be said that we are approaching an inflection point when it comes to digital identity policy in the UK. Successive Governments have examined the clear benefits of introducing a digital identity. Indeed, in this area the UK’s journey can perhaps be characterised as a series of false starts.  

The most notable step on this journey, was the Government’s plan for an identity verification programme that would have allowed UK citizens to access public services through one ‘Government gateway’ known as ‘Verify’. However, its rollout which was originally intended to reach 25 million users by the end of 2020, is due to be scrapped after eight years of operation.  

Now, a new ‘first’ step on the UK’s journey to digital identity is beginning with the recently published Department for Digital, Culture, Media and Sport (DCMS)  paper on “UK digital identity and attributes trust framework”. In response to last year’s Digital Identity: Call for Evidence, the UK Government sought to create a clear framework of rules which show what ‘ good’ digital identities look like; establish a governance and oversight function to own these rules; and develop proposals which remove the legislative blockers to the use of secure digital identities. The DCMS Trust Framework has been billed as the first ‘working version’ of this broader vision, and is further central to the Government Digital Service’s work to develop a new cross-government single sign-on and identity assurance solution. 

Alongside this are the pioneering recommendations in the Kalifa Review and fresh impetus provided by the Government’s original consultation response on digital identity. Indeed, the Kalifa Review’s first recommendation acknowledges the UK must “deliver a digital finance package that creates a new regulatory framework for emerging technology”, where digital identity should play a central role in the future-proofing of our public infrastructure. The benefits are clear, according to a recent report from McKinsey, which predicted that the adoption of digital identity could unlock economic value equivalent to 3 per cent of GDP in the UK by 2030.  

Calls to action 

Building on the DCMS Trust Framework, and Kalifa Review, the UK Government has clearly put digital identity back at the heart of policymaking. And whilst we continue to see international jurisdictions forge ahead on digital identity – such as the usage of ‘Bank ID’ across much of Scandinavia, which have seen penetration rates of over 80 per cent – without coordinated action the UK may potentially risk falling behind.  

We look forward to working with the financial services sector as it looks to develop innovative open banking-driven solutions that complement the broader use of digital identity in the economy. The Government has a key role to play in making this a reality as it guides the UK towards an economy where digital identity verification becomes the norm. To do so, the Government must: 

  • Remain focused on developing a trusted digital identity framework in the UK and promote its widespread adoption across the economy. 
  • Build on existing experience in the sharing of customer data – such as that developed by open banking – ensuring common standards and authentication methods; and 
  • Develop a robust trust framework and liability model, alongside a dedicated oversight body.  

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.

Contact press@openbanking.org.uk to request coverage of a specific topic.

Transforming public sector delivery through open banking technologies 
  • The solutions provided each day by the public sector are vast, complex, and essential – but also reliant on legacy banking issues and workarounds that increase complexity and the possibility of mistakes
  • Open banking enables more effective delivery of essential public services, reduction of errors and, a more inclusive financial services ecosystem for people and small businesses
  • The OBIE was delighted to support HMRC in tendering for an open banking-enabled third-party provider and hopes to see the use cases expand over the coming months

The public sector and Government departments have a challenging role in today’s society. While easy to criticise from afar, their task is immense, complicated, and on a scale that few private sector businesses will ever face – without considering the impact of the COVID-19 pandemic.

A key function in any organisation, public or private, is contingent upon its relationship with a banking provider. This is even more critical for a core distributor, such as the Department for Work and Pensions (DWP) or a core collector, such as HM Revenue and Customs (HMRC). The volumes they process are staggering: HMRC collected around £627 billion in the 2018/19 tax year, while the DWP distributed £190 billion in 2019/20.

Banking’s particular legacy issues are embedded into payment frameworks and typically solved by either expensive or near-perfect workarounds, further complicating the system. When these ‘workarounds’ function, we are none the wiser. But when these solutions fail (and they do) they can cause serious issues.

Take HMRC: imagine 1000 people paying corporation tax to HMRC. Each must quote a reference number, sort code, and account number. Once, a cheque would be submitted with the relevant paying-in slip. But what happens when payments are made with the incorrect reference, or cheques are sent without paying-in slips? Maybe the person doesn’t have online banking or a cheque book? While payment via debit card may provide another bank workaround, how do we fix the 1% of errors that still occur?

The teams that repair transactions have a challenging role. With this HMRC example, they would need to manually search records for similar matches and use antiquated (legacy) methods to allocate income. Combined with the transaction fees incurred by card settlement, the result is a difficult environment in which to provide a logical, cost-effective solution.

Open banking provides an answer. Let’s first focus on failed payments due to incorrect referencing. Instead of relying upon manual rectification, open banking automates the entire process: when sort codes, account numbers, references, and amounts are pre-filled, that 1% of errors disappears.

Delving deeper into the public sector, we see many use cases where open banking could deliver similar benefits: bar code payments for manual payment methods, child support repayments, benefits over-payments. These can all be addressed with open banking.

The potential of this technology to the public sector is so considerable that HMRC recently tendered and awarded a contract for integrating open banking payment processes. Ecospend, an ecosystem participant, was selected to streamline and automate parts of HMRC’s payment processes, minimise errors, reduce fraud, and improve ease of use for taxpayers. This means that payments can be sent directly from a payer’s bank account, using validated HMRC data to pre-fill the details outlined above, while funds can be transferred via Faster Payments without the need to share card or bank details. HMRC is also in the process of awarding a Confirmation of Payee (CoP) contract, (CoP is a Pay.uk product underpinned by the open banking directory).

The strongest weapon in open banking’s armoury is much more than reducing errors: it’s the potential to create a more diverse and inclusive financial ecosystem. Many people who deal regularly with our public sector are financially excluded. Some cannot get a debit card or bank account as they exist in a cash-only society. They have no credit file, they pay in person at a post office, make deposits at a bank and use pre-paid meter cash networks. Open banking will soon ’open up’ their access to the digital society.

Open banking enables a secure framework that allows customers to digitally authenticate themselves to third-party providers to share data or to make a payment. If we extend these principles, businesses (or indeed public departments) could create a framework that enables people to share their identity with other third parties within similar trust and security frameworks with the consumer’s consent.

This will make it easier to open a bank account or access online services or an app on a smartphone. There is no credit risk in these instruments, so the financially excluded could access instant and accurate payment and account methods. This in turn would lead to better tariffs. Right now, the only barrier is digital access. Open banking will enable much more of society to be included.

The COVID-19 crisis has taught us some harsh lessons, but it has also been a catalyst for much needed change within the financial services sector. In the post-COVID era, the demand for digital solutions will only gain momentum and open banking must be at the heart of it.

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.

Contact press@openbanking.org.uk to request coverage of a specific topic.

Delivering innovative payment solutions in a changing world
  • Fostering innovation in the payments landscape is crucial to building tailored services that meet the needs and expectations of a modern economy
  • Building on open banking’s successes – including the recent processing of over 1.2 million open banking-enabled payments in a single month – can lead to cheaper, faster, and more secure payments for consumers and businesses
  • The UK needs a coherent payments strategy that has open banking payments at its core, not at the periphery
  • Delivering the benefits of open banking is an ongoing journey; work must continue to drive adoption and monitor regulations to ensure its full benefits are realised

The way we manage our money is changing. The uptake of financial services apps and the use of open banking-enabled services are increasing rapidly, driven in part by COVID-19. According to a survey of 2,000 UK adults in early July 2020, one in five started using online banking apps during the first lockdown and 54% now use them regularly. Similarly, the number of people and businesses using open banking-enabled products has doubled to 3 million in just over six months. These innovative offerings are addressing real need and delivering clear benefits at a critical time.

Against this backdrop of behavioural change, the Treasury has been conducting its Payments Landscape Review, looking back through changes delivered over the past decade to consider what needs to be done to ensure consumers, businesses and the wider economy benefit “to the fullest extent” from payments networks.

Where do we stand?

There is much to be thankful for in the UK’s payments landscape. Faster Payments – an inter-bank agreement that reduced the time taken to transfer payments between accounts – allows for near-real-time settlement. Cards are widely accepted, and online shopping faces few barriers. The UK’s track record for innovation also stands up to scrutiny. For example, contactless payments have been enabled up to a value of £45, and the use of biometric and smartphone authentication is increasing.

But there are aspects of our payments ecosystem that still need to be improved. People should be able to cancel subscriptions at the tap of a button, not through a cumbersome phone call. This is crucial to avoiding subscription traps, a key tenet of the Competition and Market Authority’s (CMA) work on the loyalty penalty faced by too many consumers. Further, too much money is being lost to fraud, and the protections in place are inadequate. Lastly, too many businesses pay too much simply to receive incoming payments. At a time when businesses are struggling to remain viable, this needs to be addressed.

Where do we go from here?

We’re beginning to see growth in open banking payments. In 2018, 320,000 open banking payments were made. This rose to over 3.4 million in 2020. In 2021, this has jumped dramatically, rising to 1.2 million monthly open banking payments in January alone. This leap demonstrates how open banking can be the vehicle to take innovation in payments to new levels, enabling quick and secure payments directly between bank accounts, without the need for cards. This means retailers and charities accepting open banking payments, with funds going straight into their bank accounts and minimal transfer fees. See here how this was used to great effect during Captain Tom’s heroic fundraising last year. Open banking allows you to securely make payments without inputting unwieldy card details or to feel the need that you must save card details within a website. All can quickly be approved via your banking app or even by scanning the humble QR code.

Businesses will also be able to easily reconcile payments, using integrated invoicing, payment, and accounting software, powered by open banking.

At the Open Banking Implementation Entity (OBIE), we are particularly excited by Variable Recurring Payments (VRPs), a smart and sophisticated form of direct debit, which has the potential to solve the subscription trap by allowing people full control over their subscriptions, and the power to cancel them at any point. In the immediate term, we are in the process of developing a solution using VRPs for ‘Sweeping’ between an individual’s accounts, a move we see as a stepping-stone on the way to seeing VRPs applied across the broader economy. Greater control, greater security, greater speed, and lower cost – an essential innovation.

How do we deliver this vision?

Open banking provides a demonstrable means of delivering new innovative services and is a tangible example of a regulatory initiative that allows commercial activity to evolve from and complement existing payments infrastructure. The Open Banking Standards provide the basis upon which innovation can flourish without necessitating the need for participants to join the schemes directly.

For these innovative, world-leading initiatives to become a reality, we need a commitment to deliver the open banking revolution to completion. We at OBIE are proud of our achievements over the past three years and the role we have played in revolutionising how financial services serve consumers. It takes us one step closer to open finance, which could include data from areas such as pensions, mortgages, savings, and insurance. In order to continue making the most of the project and cement its benefits into the future, the OBIE, or its successor body, must have the remit to continue driving adoption and the power to recommend tweaks to regulation that may be required in the future. A coherent payments strategy is needed that puts open banking at its core, with the New Payments Architecture explicitly facilitating open banking payments and reducing the cost of faster payments.

We’re all striving for the same end game: a satisfied, empowered, and informed customer served by a buoyant and vibrant market. Regulation can create the right environment, conditions, and framework for the market to innovate and compete, both kickstarting the industry into action where it hasn’t occurred voluntarily and enabling disrupters to enter the market and cause a new sense of competition themselves.

We look forward to working with policymakers, industry, and the open banking ecosystem to make this payments landscape a reality.