13th January 2019 marked one year since the UK embarked on its Open Banking experiment. Despite the inevitable teething problems, the initial signs are encouraging, as banks up their game in the face of strong competition from innovative third party products and services.
Whith another version of the Open Banking Standard yet to be released, optimistic expectations prevail in regard to increased features and functionality and the continuation of the improvement of customer experience.
The Open Banking Implementation Entity reveals to Finextra that it currently has 118 regulated organisations in the Open Banking ecosystem and 200 firms waiting to join. Alongside this, in addition to the nine mandated banks – also known as the CMA9 – there are 40 banks using the Open Banking Standard.
The OBIE believes that for the customer, what has changed is that as most of the larger financial institutions have now launched their own data aggregation services, they are able to communicate with their bank in a language they know and trust and are given guidance, information and education by their provider.
Ahead of Innovate Finance’s Global Summit at The Guildhall on 29th-30th April, Finextra spoke to Emily Reid, partner, head of fintech and innovation at Hogan Lovells, Adam Farkas, executive director of the European Banking Authority and Imran Gulamhuseinwala, implementation trustee of the OBIE.
Gulamhuseinwala says: “Two years ago, Open Banking was regarded by many as a typical compliance exercise championed only by a handful of fintechs - more tech spend driven by compliance rather than business case or customer need. This is no longer the case. Banks have very firmly moved from viewing Open Banking as a compliance exercise to an opportunity to compete and innovate.”
“Open Banking is not happening simply because the regulators are mandating it - it is happening because there is a commercial opportunity and because there is an opportunity to make the financial infrastructure of a nation more efficient, more flexible and serve customers better. We are looking forward to the opportunities it will bring across the economy and society as a whole.”
According to the OBIE, in addition to helping individuals with their finances, Open Banking is also using technology to combat societal issues such as access to mortgages and debt advice, with benefits for the UK SME community also being perceived.
With the UK being the first nation to implement a standardised Open Banking solution, Gulamhuseinwala believes that “there are some common learnings others can draw across, because there are at least a couple of ideas that underpin Open Banking that we no longer debate.”
Adam Farkas, executive director of the European Banking Authority, adds that the European Union’s revised version of the Payment Services Directive “and the access to payment accounts that it now legally enables, aims at achieving a number of different objectives, such as increased competition, greater innovation, more customer convenience, enhanced security, and an integrated payments market across the EU.”
Farkas goes on to describe these objectives as “ambitious, manifold, and paradigm-shifting, which is why they will not be achieved immediately and all at the same time.” He adds that the rewards of PDS2 will not be apparent from the off, but will emerge gradually over time, as appears to be the case in the UK.
“The next major milestone will be the EBA’s Technical Standards on strong customer authentication and common and secure communication. These standards will apply from 14 September 2019 and complete the extensive security requirements the EBA has developed over the past two years in order to achieve the aforementioned objective. Thousands of third-party providers and banks across the EU are currently in the process of testing the performance of API interfaces with a view to be compliant by this date.”
Emily Reid, partner at Hogan Lovells, agrees that these changes aren’t yet apparent “as many PSPs are waiting for implementation of the RTS mandating open APIs for all payment accounts before launching services. The biggest change so far is probably in mind-set. PSPs are (almost universally) assessing the opportunities and threats of open banking and taking steps to comply with access requirements and/or leverage the opportunity.”
Caring about Open Banking
The OBIE indicates that customers do not need to care about Open Banking, in the same way that they do not need to concern themselves about how the Internet works: it will become something that is part of their daily lives.
In terms of addressing customer issues directly, the OBIE has published Customer Experience Guidelines (CEG) to facilitate use of Open Banking-enabled products and services.
Gulamhuseinwala says: “It has always been clear that while Open Banking is driven by world-leading technology standards, its success depends on how well it serves customers. The Customer Experience Guidelines establish a high bar for service and put the customer’s experience at the heart of the system.
He adds a point on serving SMEs and says that “there is a huge amount that Open Banking can do to help support those companies. Many of these small businesses struggle to get credit from entities other than their banks. Using Open Banking, they can get access to many more credit providers for example”.
Farkas highlights that because there is an increasing number of innovative customer offerings emerging across the EU from third party providers and banks alike, “the more value and convenience they add to consumers, the greater the interest will be by consumers to learn more about these products.
“And, as is usually the case with customers’ take-up of innovations, some will be early adopters while others will join at a later stage.” Farkas goes on to discuss how the EBA has an important role in increasing transparency for consumers, with its central electronic register of payment and electronic money institutions.
“The register provides extensive information of all authorised firms in the EU, is updated daily, easy to use, free of charge, and should thus allow consumers to make well-informed choices about the new providers that have entered the market.”
The future of open banking
Reid predicts that Open Banking will have a fundamental impact on the financial sector over time, and as the Farkas and Gulamhuseinwala explained, this won't be a big bang. “We're likely to see many applications that haven't yet been imagined.
We should expect Open Banking to improve access to financial services for those who are currently excluded and enable the mass market to manage their finances actively and with greater insight and sophistication.”
Gulamhuseinwala also says that “2019 is the year that open banking becomes real. The user experience is going to be improved, with a frictionless experience for customers being introduced, as we move onto mobile. This will make the account information journeys easier and payments delivered with more speed and convenience.”
“Fintechs are already demonstrating that you can come into the market and provide a great proposition because the barriers to entry are so low. There is an opportunity to challenge some of the established players and I anticipate seeing non-financial services companies (such as mobile phone operators, pure tech companies and insurance companies) also entering this space. All of those lines are going to blur.”