Open Banking has been live in the UK for six years now – 13 January 2024, marked the six-year anniversary of Open Banking. While it might not seem like a significant milestone, it has prompted some pause for thought among ecosystem participants.
How far has the UK’s Open Banking implementation come in that time? What is there to celebrate?
Has adoption lived up to expectations and, if not, why?
And, perhaps the biggest question of all: what does the UK hope to achieve as other countries, such as Brazil, continue to make huge strides in implementing not just Open Banking, but Open Finance?
Blazing a trail
Let’s start with the UK’s achievements and successes in Open Banking – of which there are many.
“Six years ago the UK experienced a trailblazing moment as the first country in the world to step forward and exploit the value of financial data for consumers and small businesses,” David Beardmore, ecosystems development director at Raidiam, says.
“That is an achievement that we should, rightly, be proud of and, in doing so, we became the country to watch and provided the blueprint for others to follow.
“In the years since, we have progressed Open Banking policy and broadened the scope, and a key consequential achievement out of all of this has to be the change in landscape of providers and services now available.”
He believes that the breadth and depth of choice of offerings – from digital banks to niche services targeted at those with more specific needs – has been “a winner for competition and customers”.
But, he asks, have we made the most of being first and holding an extraordinary amount of homegrown expertise and technology?
“I think the general consensus on the answer to this is ‘no’,” says Beardmore.
On 13 January last year, the Competition and Markets Authority’s (CMA’s) Open Banking Roadmap was completed, leaving the industry at something of a crossroads. For the first time, the UK did not have a clear sense of direction about the next steps to be taken, and genuine concerns about the country’s competitive standing were raised.
“We’ve, unfortunately, experienced two years of stalling here in the UK, while we try and correct the initial shortcomings that were made around scope, governance and funding, for example,” he explains.
“During this period, we’ve seen other countries leapfrog us in terms of size and scope – such as Brazil, whose Open Finance ecosystem now dwarfs the UK’s Open Banking and with an active Open Insurance service up and running. And there are plenty of others in different stages of their own journeys who have taken advantage of the foundations we created and built upon them,” Beardmore adds.
For many in the industry, including Stephen Wright, head of corporate and regulatory APIs at NatWest, the UK is still waiting for that ‘killer’ use case.
“It has driven greater customer choice and has encouraged banks to do things differently,” says Wright.
“However, while Open Banking is used by around 10% of the adult population, its use cases are limited and have not yet entered daily or weekly usage for most consumers and businesses.
“To accelerate increased adoption of Open Banking, there needs to be a compelling user experience and expansion of use cases.”
Wright also calls for clarity from the government on the future of the new implementation entity and the commercial model for Open Banking.
“Having a clearer sense of direction on this will catalyse the cross-industry collaboration and market investment that is needed to speed up and facilitate the transition to Open Finance and Smart Data,” he adds.
Hans Tesselaar, executive director at BIAN, which stands for Banking Industry Architecture Network, is of the view that Open Banking has not met its potential.
While he acknowledges there have been some developments, he says “the fact that Open Banking is primarily initiated and supported by regulators and not consumer demand means that these have been minor”.
“This is because the underlying goal in the past five years has been to increase competition within the sector – but no-one wants to give away the advantage of their valuable data, with little in return. There is still a long way to go to educate both the industry and consumers around the benefits it brings,” Tesselaar adds.
The UK has witnessed “substantial progress” from some of the technology giants, according to Emma Steeley, chief executive officer of Aro, who points to Apple Pay in particular.
In September last year, Apple soft launched a new iPhone Wallet app integration in the UK powered by Open Banking.
At the time, Lauren Jones, director, market development at Open Banking Exchange, wrote on LinkedIn: “The UK Apple Wallet will soon be able to leverage account aggregation as Apple will provide current account history and balances for connected accounts. This will drive competition and provide genuine value for customers – I for one will switch my current account if it is not supported.”
But, for Steeley, Open Banking is still “at the very beginning of realising its potential”.
“Like all emerging technologies, the scope for pioneering applications that cater to changing consumer needs is vast – especially in the financial services industry,” she explains.
“The integration of Open Banking technology holds immense promise for the lending industry, and we’ve barely scratched the surface of possibilities when it comes to leveraging a broader spectrum of data.
“What we hope to see over the next year is a transition where lenders become direct beneficiaries of this data, responding to the immediate needs of consumers amid the ongoing cost-of-living crisis,” Steeley adds.
It is a similar story in payments, where Open Banking holds huge and, as yet, unmet potential.
Tom Burton, director of external affairs and public policy at GoCardless, says: “Open Banking has made great strides so far in the UK.
“More than eight million consumers and SMEs have used the technology and in November, the number of monthly Open Banking payments surpassed 12 million.”
“But Open Banking has not reached its full potential, especially on the payments side,” notes Burton.
“We, and experts like Joe Garner, through his Future of Payments Review, believe it will be the primary alternative to card payments. In order for that to happen, we need the ability to collect recurring real-time payments across every use case, full coverage across banks and a great user experience.
“Integration into digital wallets will boost adoption, as will improvements to the dispute resolution process,” he adds.
Todd Clyde, chief executive officer of Token.io, believes that Open Banking’s transformative potential in payments is becoming more widely recognised among consumers, merchants, and payment companies.
“Consumers will come for the incentives and stay for the user experience. Merchants will come for the savings and stay for the success rates; bypassing intermediaries with significantly lower transaction costs,” Clyde explains.
“And payment companies have two key drivers: they will come to meet merchant demand and stay for better margins, and they will be lured by the cutting-edge technology and stay for a hands-on partnership to achieve success and sustainable growth.”
What’s to come?
Finally, Open Banking Expo caught up with the organisation responsible for overseeing Open Banking here in the UK for their thoughts on what’s to come.
Marion King, chair and trustee of Open Banking Limited, says: “As we mark Open Banking’s sixth anniversary as a regulatory requirement, protecting what we’ve built is paramount as we develop Open Banking’s long-term future in 2024.
“This is a pivotal year and our focus will be to continue to protect the CMA Order, including maintaining the standard with a new release, planning and beginning to execute transition to the future entity, and supporting the government and regulators’ ambitions to realise Open Banking’s full potential and develop new Smart Data schemes.”
Open Banking Limited’s chief executive officer Henk Van Hulle adds: “2024 will be a critical and defining year for Open Banking. With a planned transition to a future entity and significant progress in delivering the Joint Regulatory Oversight Committee’s roadmap and soon-to-be announcements on Smart Data timetable initiatives, the UK’s commitment to innovation and competition is steadfast.
“This year marks a shift toward a future where Open Banking will thrive and move beyond the CMA Order, creating collective benefits for the entire ecosystem, end-users and the economy as a whole.”
“Over the next six years, I’m confident that we will see the pace of UK development and innovation pick up – both under the guise of Open Finance and, through Smart Data, into other sectors,” Raidiam’s Beardmore says.
“We might even reach the stage of interoperability, with sophisticated data sharing occurring cross-sector and cross-region.”
Tesselaar suggests: “Whether individual countries have a regulatory or market-driven approach to Open Banking, a collaborative ecosystem of banks, fintechs, providers and aggregators that is committed to working together to deliver … education and create seamless experiences will be key to Open Banking reaching its potential on a global scale.”