It’s crunch time for open banking in the UK

It’s been almost five years since the Open Banking Implementation Entity (OBIE) – the standards and guidelines-setter for the open banking sector – was introduced under the direction of the Competition and Markets Authority (CMA).

The UK government and regulators have a golden opportunity to set open banking on a path to success

Since then, we’ve seen a tremendous number of new open banking-powered solutions that are making a difference to consumers and British businesses. There are now more than six million active open banking users in the UK – great news for consumers, merchants and the UK’s fintech sector.

However, with the CMA’s mandate set to expire imminently, open banking finds itself at a crossroads. A successor to the OBIE and a permanent regulatory framework for open banking urgently needs to be found. That is the task HM Treasury, the FCA, the PSR and the CMA (together with the Joint Regulatory Oversight Committee, or JROC) currently have in their in-tray.

JROC’s challenge should not be taken lightly. Their conclusions will be the most significant milestone for the sector since open banking came into effect almost half a decade ago and will set the tone for the next decade.

To help inform the process, JROC convened a ‘Strategic Working Group’ of experts and industry representatives. This group has been working feverishly on a report for JROC over the last couple of months. We should see the report, and JROC’s final recommendations, emerge early next year.

Opportunity beckons if we can get the right mix of ‘carrot’ and ‘stick’

Open banking has not gone without its criticisms. Some banks and fintechs alike have been cool on, or even outright questioned, open banking’s value over the years.  But cynics shouldn’t discount the many benefits it’s unlocked even if the road hasn’t always been smooth: from delivering better, safer banking experiences and greater control over their finances for consumers, to arming businesses with more affordable, superior services that compete with traditional payment acceptance methods like cards.

And the rewards are potentially much bigger than that. If we get the framework for open banking right, it will attract more investment for innovative start-ups and scale-ups in the space, helping to create jobs, support the economy through the recession and ensure the UK remains a world-leading fintech hub.

JROC must find a sustainable future framework that blends the right mix of regulation with commercial incentives, allowing firms to focus on delivering great customer experiences and robust consumer protection. That is how we will build trust in open banking and accelerate its use so that it becomes a genuine competitor to other forms of payments, like cards.

What we want to see from JROC

So where should the regulatory authorities be focusing their efforts? We believe there are four key areas:

1. Broaden and toughen compliance with the current standards: Some of the current rules aren’t followed, some are optional, and all only apply to the nine largest retail banks in the UK. We need full compliance, for them to be mandatory for all banks, and for them to be done to a high standard. A strong, independent successor to the OBIE, underpinned by regulation, is required for that, alongside commercial incentives to ensure firms deliver an exceptional customer experience.
2. Maximise open banking’s innovation potential: Open banking should be competing across as many different use cases as possible. But a ‘hero’ use case would be a great way of putting rocket boosters under adoption. That’s how contactless payments took off in the UK: the use of Oyster cards on the Transport for London network demonstrated its value to consumers. We believe making variable recurring payments (VRPs) available for key use cases that people will recognise, like paying utility bills, could be the open banking equivalent of this.
3. Improve customer experience: There are ‘quick wins’ available to significantly improve the current open banking user experience. High value transactions fail too frequently – let’s solve that. An instant confirmation of when a payment has gone through would make open banking payments suited to e-commerce. Make it easy for fintechs to navigate the open banking ecosystem by clearly articulating the different roles and remits of authorities with ‘skin in the game’ so fintechs can focus on their customers and products.
4. Prioritisation: JROC should step in where there is a genuine market failure and misalignment of incentives preventing customers from receiving the best user experience possible. This will ensure that scarce resources are not wasted on ‘low value’, nice-to-have adjustments – which in some circumstances could even hamper competition and innovation.

It is crunch time for open banking in the UK. Consumers deserve better. Our businesses deserve better. And UK fintech – which, like all of us, has had a tough year – would welcome a boost. The government and regulators have a golden opportunity to set open banking on a path to success.