Open Banking About to Become a Reality
It is just over a month until Open Banking becomes a reality. At least for the customers of the leading nine UK banks, the so called CMA 9, who have been mandated to share their payment account data from 13th January 2018. The industry is, however, still a long way from where it needs to be to deliver on the significant opportunity promised. The provision of third party access to payment accounts is certainly a great stride forward but it is only the first of many steps to realise Open Banking’s full potential.
A Good Start from OBIE but Gaps Remain
The stated objectives behind the UK’s Open Banking initiative and access to accounts (XS2A) under PSD2 share much in common. They include increasing competition, widening choice and improving the quality of consumer experience. While the UK has taken a proactive lead in developing standards and proving concepts under the auspices of the Open Banking Implementation Entity (OBIE), and while there has been proactive involvement from across the industry there are still significant gaps. A number of these are discussed in a timely techUK policy paper “The Future of Open Banking – the Long View” that was launched recently in London.
One of the areas where there greatest need for focus is customer communication. Awareness of Open Banking amongst consumers is currently minimal. Mainstream media coverage to date has been sparse, and sometimes negative. Bank communications seem to have been limited to updates to terms and conditions – never the most compelling reading.
Coordinated Consumer Communications will be Key
Without consumer demand, Open Banking will come to nothing. Demand will not materialise without widespread public awareness, understanding, acceptance and trust. While there might be short term advantage for banks in restricting communications until they are ready to promote their own AISP services, we would argue that a more collaborative industry wide approach is beneficial. If the objectives of Open Banking are to be successfully delivered, the UK government, regulators, banks and Fintechs need to collaborate to engage and educate consumers on the benefits. Without a positive initiative to increase awareness, consumers are likely to remain poorly informed and rightly concerned about the security of their data. The risk of this is underlined by a recent Accenture survey reportedly finding 69% of consumers would not want to share their bank data with third party providers. If the underlying principles and objectives behind the legislation are not communicated effectively, the opportunity to drive early consumer adoption and deliver new Open Banking benefits will be lost.
At the launch event of their paper, techUK argued that thought should be “given to the mechanisms required to provide reassurance” for consumers. This must form part of a long-term Open Banking strategy which streamlines disparate initiatives involving the collaboration of the UK Government, regulators and industry players through open communication and development of common standards.
This approach has widespread support in the Fintech sector. During the event, Modulr, Bud, Fluidly and Funding Options all came out to stress the importance of consumer trust built on open industry collaboration and development of common standards.
Capitalising on the OBIE’s Expanded Remit
November’s budget announcement that the OBIE’s remit would be extended to develop standards for all types of payment account covered by PSD2 was intended to incentivise Fintechs to drive further innovation through increased involvement in the financial services ecosystem. The goal, according to Imran Gulamhuseinwala, Trustee of the OBIE, is to build renewed confidence within the sector to develop additional Open Banking services that will make a real difference for consumers.
The OBIE now has a mandate to enhance beyond what will be delivered on 13th January 2018 and a clearly defined release schedule to coincide with the regulatory application of the PSD2 Regulatory and Technical Standards, the final version of which was published on 27th November. all it’s work to date has been predominantly standards driven, it does provide a point of focus for the industry. FirstPartner believes that this provides the ideal opportunity to fast-track the collaborative process and ensure the necessary alignment between the interested parties. Consumer confidence in Open Banking services should increase as the UK Government works alongside the regulators, banks and Fintech to enable the provision of products that both deliver the benefits of Open Banking and meet the consumer’s needs.