How is open banking progressing in the UK?

It has been near­ly three years since the Sec­ond Pay­ment Ser­vices Direc­tive (PSD2) came into force. A much-her­ald­ed move, has this piece of Euro­pean leg­is­la­tion enabled the UK’s tra­di­tion­al finan­cial ser­vices sec­tor to dig­i­tal­ly trans­form or is it yet to ful­ly embrace the poten­tial of Open Bank­ing?

The UK’s Com­pe­ti­tion and Mar­kets Author­i­ty (CMA) had hoped PSD2, which arrived in Jan­u­ary 2018, would lev­el the play­ing field between incum­bent lega­cy banks and small­er fin­tech chal­lengers.

Enabling new­com­ers to get a foothold for growth in the mar­ket was an issue high­light­ed in 2016 by the CMA which went on to set up the Open Bank­ing Imple­men­ta­tion Enti­ty (OBIE) to “cre­ate soft­ware stan­dards and indus­try guide­lines that dri­ve com­pe­ti­tion and inno­va­tion”.

How­ev­er, experts are divid­ed on whether this has been achieved. Many high­light slow move­ment by some of the incum­bents, despite the new arrange­ments for secure shar­ing of cur­rent account infor­ma­tion with third-par­ty providers, offer­ing trans­for­ma­tive tools for per­son­al cus­tomers and small­er busi­ness­es.

Using new apps and web­sites, cus­tomers can see a sin­gle clear view of their finances to deliv­er more effec­tive bud­get­ing, gain easy access to the best deals, ser­vices and cred­it options from the whole mar­ket and spot fraud faster.

Offi­cial fig­ures out in Sep­tem­ber do appear to be promis­ing. Users of Open Bank­ing-enabled prod­ucts exceed­ed two mil­lion, a dou­bling in just over six months. Imran Gulamhu­sein­wala, trustee of OBIE, which is fund­ed by the UK’s nine largest banks and build­ing soci­eties, says Open Bank­ing is “rebal­anc­ing the mar­ket in favour of con­sumers and small busi­ness­es”.

Banks have not embraced Open Banking fast enough

But oth­ers are less sure. Luc Gue­ri­ane, chief com­mer­cial offi­cer at pay­ment solu­tions com­pa­ny Moor­wand, believes Open Bank­ing is fail­ing. ”Beyond the reluc­tance from banks, low-con­sumer aware­ness and the lim­it­ed num­ber of ser­vices are also key to its fail­ing,” he says.

“The prod­ucts that are there are often over­shad­owed by the reli­a­bil­i­ty and secu­ri­ty which is asso­ci­at­ed with incum­bent play­ers.

“It must become both eas­i­er and cheap­er for new play­ers to build Open Bank­ing APIs [appli­ca­tion pro­gram­ming inter­faces] and pro­pel their ser­vices into the main­stream. Mak­ing infra­struc­ture read­i­ly avail­able will be key.”

Adam Bialy, chief prod­uct offi­cer at Open­Payd, adds: “The APIs are being built and the infra­struc­ture is in place, but few banks are meet­ing PSD2 require­ments.

“Open Bank­ing has been less of a cat­a­lyst and more of a ‘gen­tle nudge’, with con­sumer-fac­ing appli­ca­tions being lim­it­ed to chiefly account aggre­ga­tion ser­vices.”

And while Mike Hamp­son, chief exec­u­tive of Bish­ops­gate Finan­cial, feels the slow­ness was due to the dif­fi­cul­ty of “adapt­ing API lega­cy archi­tec­ture to be flex­i­ble and respon­sive, rather than a delib­er­ate attempt to sti­fle the com­pe­ti­tion”, he says: “But now, banks can use the com­pet­i­tive data held by oth­er providers, to expand and rebun­dle their ser­vices, while improv­ing their bot­tom line.”

One sug­ges­tion for such inno­va­tion is to take more advan­tage of account-based pay­ments with­in the retail sec­tor, as this would cut the cost of com­merce, but Bialy explains this is being hin­dered by “clunky user authen­ti­ca­tion flows that are dif­fer­ent for each bank”.

This is still the right leap for­ward, accord­ing to Jonathan Hugh­es, chief exec­u­tive of pay­ment and bank­ing experts Pol­li­nate Hori­zons. ”For mer­chants, there are sig­nif­i­cant eco­nom­ic advan­tages to accept­ing pay­ment through an Open Bank­ing trans­ac­tion, rather than on the card rails,” he says. “The large enter­pris­es that adopt­ed Open Bank­ing ear­ly on have fore­cast huge sav­ings when com­pared to using cards, which in turn could result in sav­ings for small and medi­um-sized enter­pris­es.”

Open Banking is not all doom and gloom

How­ev­er, on the oth­er side of the vir­tu­al coin, Open Bank­ing is solv­ing exist­ing prob­lems and defin­ing new ways of doing things, from tar­get­ing rec­om­men­da­tions for restau­rants, attrac­tions and activ­i­ties based on pre­vi­ous finan­cial behav­iour, to Open Bank­ing Excel­lence, an aware­ness-rais­ing group, join­ing forces with Mon­ey­hub Enter­prise and Stree­va to pow­er char­i­ty dona­tions by scan­ning a QR code with a phone. It then pays direct­ly from the user’s bank account to the charity’s account with auto­mat­ed Gift Aid.

Fred­dy Kel­ly, co-founder and chief exec­u­tive of Open Bank­ing cred­it ref­er­ence agency Cred­it Kudos, is anoth­er see­ing the ben­e­fits, this time for loans. He says: “A grow­ing num­ber of lenders, includ­ing banks, are embrac­ing Open Bank­ing as it helps them bet­ter under­stand a customer’s behav­iour in a rapid­ly chang­ing world. By a bor­row­er secure­ly shar­ing their bank trans­ac­tion data through Open Bank­ing, the lender is able to detect a customer’s recent loss of, or sig­nif­i­cant change in, income as well as iden­ti­fy new bor­row­ing behav­iour.”

Ada Wes­t­er­i­nen, Europe, Mid­dle East and Africa direc­tor of solu­tions con­sult­ing for part­ners at Mule­Soft, is also upbeat. “Open Bank­ing is a huge oppor­tu­ni­ty for banks to unlock new sources of rev­enue if they can build high­ly per­son­alised cus­tomer expe­ri­ences in col­lab­o­ra­tion with oth­er banks and ser­vice providers,” she says.

“Banks have tak­en steps towards becom­ing cura­tors of finan­cial ser­vices, estab­lish­ing mar­ket­places in which cus­tomers and providers can come to select the best prod­ucts at the right price.

“By embrac­ing this mind­set, tra­di­tion­al banks can behave more like Sil­i­con Val­ley star­tups, cre­at­ing new rev­enue chan­nels by shar­ing their core bank­ing capa­bil­i­ties and cus­tomer base with autho­rised inno­va­tion part­ners.”

One such inno­va­tor is Vic­tor Trok­oudes, co-founder and chief exec­u­tive of free mon­ey man­age­ment app Plum. He esti­mates Plum can make the aver­age per­son £186,000 bet­ter off over their life­time. “The kind of finan­cial resilience this brings has been more impor­tant than ever in 2020 as the world responds to the COVID-19 pan­dem­ic,” he says.

“We’re look­ing for­ward to see­ing more peo­ple than ever before use their bank­ing data to empow­er them­selves and break down finan­cial bar­ri­ers. When this hap­pens, we’ll see the true impact: no more com­pa­nies that over­charge peo­ple, bet­ter finan­cial lit­er­a­cy and engage­ment, and true wealth for all.”

Are these four Open Banking apps a sign of the future?

Open Bank­ing is being used in many dif­fer­ent ways to aggre­gate bank account infor­ma­tion, pro­vide access to cred­it, man­age debts, apply for loans or mort­gages and make sav­ing eas­i­er. The app store run by the Open Bank­ing Imple­men­ta­tion Enti­ty (OBIE) cur­rent­ly has 89 dif­fer­ent Open Bank­ing mobile appli­ca­tions and online prod­ucts across con­sumer, busi­ness and tech­ni­cal ser­vices.

But as a sign of what could be pos­si­ble, you only have to look at the win­ners of this year’s Open Up 2020 Chal­lenge from inno­va­tion foun­da­tion Nes­ta. The con­test attract­ed 107 appli­cants, which result­ed in 15 final­ists. Each of the four win­ners will now get a £150,000 grant, on top of £50,000 award­ed at the final­ist stage, to grow their solu­tion to help more peo­ple man­age their mon­ey.

1. Mojo Mort­gages Mort­gageScore com­bines cred­it and Open Bank­ing data to deter­mine if a cus­tomer is mort­gage ready while the Mort­gage­Coach fea­ture pro­vides per­son­alised advice on how they could improve their score.
2. Mon­ey­box is an app that helps cus­tomers save and invest by set­ting mon­ey aside through round-ups, one-off or reg­u­lar deposits with the option to put the mon­ey into stocks and shares ISAs, life­time ISAs, sav­ings accounts and pen­sions.
3. Plum is a free mon­ey man­age­ment app that auto­mat­i­cal­ly sets aside small amounts every few days and can invest the mon­ey. It also finds bet­ter deals on bills and offers spend­ing insights.
4. Wagestream enables employ­ees to stream a pro­por­tion of their income as it is earned, save direct­ly from their salary, track their wages and bank bal­ance, and set smart pay­ment reminders in real time.

Lubaina Man­ji, senior pro­gramme man­ag­er of Open Up 2020 Chal­lenge, Nes­ta Chal­lenges, says: “Open Bank­ing has rev­o­lu­tionised the way peo­ple man­age their mon­ey and put them in con­trol of their finan­cial data.

Despite its huge poten­tial, it had a slight­ly slow start with many peo­ple ini­tial­ly unsure about shar­ing their finan­cial data or the ben­e­fits it would offer them.

“The £1.5‑million chal­lenge, run in part­ner­ship with OBIE, was designed to boost people’s aware­ness, trust and adop­tion of Open Bank­ing-enabled finance apps.”

New research from Open Up 2020 of 2,000 adults across the UK has found 82 per cent of peo­ple who already used Open Bank­ing-enabled apps said they helped them improve how they man­age their mon­ey with four in ten hap­py to share their data with apps like this to get per­son­alised guid­ance or to save mon­ey.

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