Comments from Starling Bank’s Anne Boden at a House of Commons Treasury Select Committee at the end of 2021 struck a painful chord with several fintech founders.
During an oral evidence session for the
Future of Financial Services inquiry, Boden expressed her opinion that “Open Banking has not been successful.” This pronouncement of the failure of Open Banking was much like telling fintech firms to stop trying to make Open Banking happen when it’s not
going to happen, and the response Boden received from the Fintech Founders, in my opinion, was much like when Gretchen Wieners tried to make fetch happen.
From Boden’s perspective, there were certain goals Open Banking was built to achieve, but it has failed to reach them, so why keep beating a dead horse? Open Banking is not necessarily needed to create innovation in the fintech industry, and as it stands
may be holding some players back.
Boden’s comments caused a large stir among the fintech community: a stir that made it clear that there is discord over the future of Open Banking, but also what the aim of Open Banking even is.
The committee hearing
Boden told MPs in October 2021 that “Open Banking has not been a success" and argued that other measures would be best deployed to encourage customers to switch accounts.
Boden argued that the thinking behind Open Banking was to break up the hold larger banks have over current accounts by allowing customers to move their data from bank to bank. During the hearing, she claimed that this does not work, stating: “Customers are
not influenced to switch banks because they can take their data with them. They switch banks because they want a better service and are prepared to lose one bank and go to another.”
Boden added that the sharing of customer data was supposed to lead to new fintechs being built. However, to this point, she argued that while there were many businesses set up in light of increased sharing of data, there was no business model because no
consumer wants to pay a fintech to consolidate this data.
Boden further commented: “Above all of that, the implementations of Open Banking that we have are clunky. You would not want to use them.”
She further warned against the idea of pushing for Open Banking to work when the industry has already learned that it doesn’t. Boden commented: “I would be very careful, and we cannot just keeping pushing on at this because we think it is going to get us
somewhere. Sometimes, you
have to realise that it is not solving the problem and that other things are more capable of encouraging customers to switch.”
We can’t keep trying to make fetch happen, when it’s just not going to happen.
While Boden’s views dominated headlines at the end of last year, what hasn’t been covered in as much depth is what was said by others present, particularly those in the CMA9 – the group of nine banks that were the first to be involved in the UK’s Open Banking
John Collins, chief legal and regulatory officer at Santander UK, commented on Open Banking and stated that, “Open banking has been slow, but it is a good example of banks and fintechs getting together and working out where the opportunity is for the consumer
in the future. We need to focus on doubling down, with the infrastructure now in place, and proving the use case, not pursuing all the connoisseurs’ points and the smaller scenarios right now.”
Collins here is saying that we can still use utilise the Open Banking initiatives, perhaps not for what was originally planned. Rather than focusing on making a concept that has been mandated happen, banks should be looking at how to use that technology
effectively and ensure progress.
At the hearing, Collins continued: “Open Banking cannot be limited as it is at the moment to the CMA9. The system needs to open up so that all participants share data to the maximum benefit of the consumer, so that we can all participate on a level playing
Nigel Terrington, chief executive of Paragon Banking Group, also agreed with Boden’s comments, stating, “So far, three million people have used Open Banking, but it is a drop in the ocean by comparison to what is needed.”
However, Terrington added: “You now need, through Open Banking, to create a market-wide deposit marketplace that, as we dream of and as the Competition and Markets Authority wants, enables the seamless and frictionless movement of cash between one bank and
Collins summarised that while he agreed with Boden that “currently, it has not delivered the volume of activity that might have been expected, but some of the savings aggregation activity has increased. Some of the corporates using it are able to aggregate
data from multiple accounts to their accountants, and it helps them with efficiencies in their business.”
It is clear from these comments that Open Banking leaders need to be able to take a step back and look at why these goals for Open Banking are not being achieved. Why does this innovation seem to be working well for some and not others?
The fintech response
53 fintech founders accused Boden of trying to thwart innovation in financial services, following her claims, which they considered to be a “dramatic oversimplification.”
Considering the definition, the the Open Banking Implementation Entity (OBIE) defines Open Banking as: “a secure way for customers to take control of their financial data and share it securely with
organisations other than their bank. By sharing this data with authorised third parties, customers can access services that help them make more of their money. This could mean access to smart savings apps, finding better mortgage rates or accessing credit.
Businesses can also use open banking – for example, to manage cash flow or make it easier to receive payments.”
Looking at this definition, it could be said that Boden’s specifications around account changes and a lack of new fintechs being built are not an oversimplification. However, after this hearing, Boden softened or clarified her comments when she tweeted:
“Let’s debate Open Banking and make it better! Innovators are courageous, avoid Groupthink, accept honest feedback, obsess about customers and then occasionally pivot! Happy to brainstorm with these Open Banking entrepreneurs to see if I can help.” This, in
a way, mirrors the suggestions of collaboration that the Fintech Founders voiced.
When asked about how interaction with banks from a fintech perspective can “discourage real transformational innovation,” Faes stated: “I know that you recently had someone from a bank before the Committee calling it not a success.
“Banks should be called out when they make comments like that, because Open Banking is a way to be able to challenge the incumbents. We are talking about customers being able to access their data with a bank, allowing competition and people providing services
in a better way than they otherwise would.” It should be noted that as Starling is not one if the CMA9, they are not one of the leads of Open Banking and have been dealing with the same issues with Open Banking as other fintechs.”
However, Faes did acknowledge that Open Banking needed improvement in some areas. His suggestion was to increase data sources, stating they should, “try to get utility providers and other ways for customers to be able to access data. It is a good thing,
and some of the comments that we were referring to before were talking about Open Banking really being just about customer account switching. That is not the case.”
Others in the fintech industry have also shown their opposition to Boden’s comments. In a blog post on Finextra, Alex Reddish,
managing director at Tribe Payments, argued: “We must remind ourselves that Open Banking goes beyond simply linking accounts and enabling better personal finance management. Open Banking can reduce costs for merchants, open up new customer segments, cement
relationships with these customers and drive revenues, at a time when all three are critical to survival.”
Commenting on Finextra, Richard Kalas, senior architect at GFT Group said: “Open Banking, as a UK regulatory mandate, may perhaps
fall short of initial expectation. It is unjust to label it a failure. It was known in advance that additional friction would make it less attractive than incumbent methods for payments.”
Sotiris Syrmakezis also added that while he agrees with Boden that “other measures would be best deployed to encourage customers
to switch accounts”, but that doesn’t mean that Open Banking should be abandoned. On the contrary, it should be further supported and augmented with additional measures.”
Ketharaman Swaminathan, founder and CEO at GTM360 Marketing Solutions’ view: “I don't deny that most successful tech startups ‘merely’ tech-mediate hitherto analogue processes. But non-OB solutions already tech-mediated the UX well before OB entered the
scene. Despite that, not too many of them have managed to go mainstream even after being around for 5-10 years.”
Swaminathan continued: “I know that OB has replaced scraping with APIs, thus making access to banking data more secure. But I'm not so sure if that adds so much consumer value proposition that it will enable A2A, PFM and other OB-based products to overcome
the adoption challenges faced by equivalent non-OB products.”
The future of open banking
Despite this, in the background, OBIE released a positive update on the initiative’s progress in 2021.
According to OBIE, there are over 4.5 million regular users of Open Banking, made up of 3.9 million consumers and 600,000 small businesses. This was a 60% increase in customers, up from 2.8 in December 2020.
At the time, Charlotte Crosswell, chair and trustee of OBIE said: “The progress made by the entire industry during the past four years to make open banking in the UK a success has been astounding. I’m proud of the contribution that the OBIE has made, enabling
and supporting ground-breaking financial innovation and collaboration across the sector. This wouldn’t have happened without a strong regulatory framework and forward-thinking policy makers to support our work. We have set a high standard in the UK, inspiring
many other markets to follow our lead.”
While it seems that few agree with Boden that Open Banking has failed, many admit that there have been shortcomings and certain aspects of the planned project have not worked out as hoped.
However, Boden’s comments highlight a conversation that seems to be desperately needed in the fintech community and perhaps, a potential reassessment may be needed around what the expectations and goals for Open Banking are. A change of definition could