2021 is shaping up to be a memorable year for open banking. With three major announcements made in recent weeks, the industry is committed to nurturing a sophisticated infrastructure – which is a very far cry from the hype of its early days.
We highlighted in our recent Playbook that it is important to learn from the mistakes and triumphs of open banking, so that we can lay a better framework for its successor, open finance.
Below is a quick recap of each announcement, the learnings it brings forward as well as our view on why it is significant.
WHEN: The report was published on 26 February.
WHAT: Among a wide-ranging report full of recommendations on how we can protect UK fintech, Ron Kalifa proposed a Coalition on Open Finance to, “create substantial opportunities for better advice and better financial outcomes.” The aim of the Coalition would be: “to understand the specific customer needs and opportunities by market and product segment and assess barriers to uptake and use.”
OUR VIEW: The Kalifa Review was a major moment for the industry. It was long-anticipated and it didn’t disappoint. Open banking was positioned as critical for UK fintech and most contributors agreed with taking steps towards making open finance a mandatory regime. However, some wanted “more concrete evidence of successes” first. This reaction, combined with the focus on an outcome-led approach and careful use of data, suggests that we still have a little way to go. Communicators should continue to tread carefully when communicating open finance.
WHEN: The plan was published on 2 March.
WHAT: Banking industry trade body UK Finance built upon detailed proposals published in June, for the OBIE to transition to an industry open banking service company temporarily referred to as the “Future Entity”. Commissioned for the Competition & Markets Authority (CMA), phase two considers “a blueprint for Open Banking which embraces current and evolving service requirements” and “a transition plan that will enable the ecosystem to achieve this blueprint without disruption or risk to the Open Banking market.”
OUR VIEW: The UK has a world-leading open banking infrastructure, thanks to the regulator’s approach to creating a robust and standardised system. Now that the OBIE has served its purpose, it is great to see open banking being handed over to the industry, particularly as we gear up to extend open banking into open finance. The report rightly acknowledges that when it comes to this extension, “customers do not see the relevance of the PSD2 boundary to their financial lives.” Prioritising – and communicating – the impact for the end-user will be key for its continued development.
WHEN: The open consultation was published on 5 March.
WHAT: Following UK Finance’s proposals, the CMA launched an open consultation about the arrangements needed for the effective oversight and governance for open banking, as well as what the Future Entity should look like. It seeks to ensure the framework is “independently-led and accountable; adequately resourced to perform the functions required; dedicated to serving the interests of consumers and SMEs; sustainable and adaptable to future needs of the ecosystem”. The consultation’s proposals are due to be implemented by the end of 2021.
OUR VIEW: The CMA’s overview of open banking adoption so far is impressive. Banks have exceeded their “narrow legal obligations” while “hundreds of open banking apps are now available to help consumers and small businesses save time and money.” However, the consultation rightly highlights that banks may have an incentive to slow down open banking’s development due to commercial interests. Opening up this consultation to industry stakeholders is critical for ensuring that open banking continues to develop and grow. Communicating this framework – and learning from these challenges – will be key, particularly as we take more steps towards open finance implementation.
Sofia Romano, Senior Account Manager, Nelson Bostock UNLIMITED