Insight: Your 2019 reflection with Faith Reynolds

26 Nov 2019

We’re nearing the end of 2019 and it’s been a busy year. Among other things, app-to-app is fast becoming the most popular way to authenticate; The Open Banking Implementation Entity (OBIE) has released and revised its Customer Experience and Operational Guidelines; and the PSD2 deadline for Secure Customer Authentication has been and gone, and the cliff-edge dealt with, at least for now… here’s hoping everyone is ready in time for March 2020.

As I write, OBIE is consulting on a new Customer Evaluation Framework which I am delighted to have been a part of. The Personal Finance Research Centre at the University of Bristol has been drafted in to look at how OBIE might measure the impact of Open Banking downstream on consumers. Key aspects include consumer awareness, trust in and adoption of Open Banking-enabled products.

The latest OBIE figures (Sept 2019) suggest there are 180 registered firms on the directory with around 53 live with at least one customer facing service.

Our analysis earlier this year shows consumers need Open Banking more than ever. Getting a better deal on your current account is one of the highest drivers of value for consumers but there are still limited products which offer personalised switching, or alternative ‘unbundled products’ such as third party overdrafts and products that sweep your high balance to an interest-bearing account.

Variable Recurring Payments (VRPs) are a key facilitating API for these products. They enable third parties to initiate a payment when certain conditions agreed upfront by the consumer are met, without requiring authentication for subsequent payments. For instance, a threshold for surplus funds in an account is identified, so money is automatically moved to a savings account.

This type of payment arrangement is important for the success of approximately 38 per cent of the consumer value from Open Banking, based on the analysis undertaken for our report on the Consumer Priorities for Open Banking earlier this year. Soon we should get news on how VRPs have fared in the FCA’s Sandbox, which they joined in April. Getting the consumer protection on VRPs right will be key to their success.

Meeting people’s needs requires much more than facilitating technology. Propositions need to be enticing. Alongside the technical challenges of creating the kind of smart, intuitive and convenient products consumers really want, firms need access to data to train their algos, sufficient funding and a basic business model to get it off the ground (among other things). Even then, a great product can fail if consumers aren’t aware it’s there for the taking. APIs are just one piece of a bigger jigsaw.

Growing the market for Open Banking-enabled products requires sustained investment in innovation. Sandboxes, hackathons, incubators and accelerators play a vital role in stimulating the market to action and in ensuring that what eventually gets to market is also good for consumers.

Initiatives like Finance Innovation Lab’s fellowship programme are helping entrepreneurs piece together the whole jigsaw needed to make Open Banking a reality. The Lab recently celebrated a Demo Day at the end of its 2010-2019 fellowship. It has had a great cohort of fellows supporting financial wellbeing, sustainable living and alternative currencies.

One notable initiative is Mortar, which uses data to improve the relationship between landlords and tenants. It aims to offer jam-jarring accounts and more swift referral for debt advice alongside supporting ‘rentflex’ with the Centre for Responsible Credit. Rentflex helps people underpay and overpay on their rent to suit their personal circumstances and avoid arrears. Many private landlords provide informal flexibility for tenants. Digitisation threatens to remove this, so Mortar are thinking about how they can build in flexibility in a way which supports tenants and respects landlords.

As the new year starts, I am super excited to see NESTA and OBIE’s Open Up Challenge 2020 kick off. OU2020 is a £1.5m prize fund to unlock the power of Open Banking for UK consumers. Alongside grants, finalists will also feature in a prominent national digital marketing campaign to drive consumer awareness and uptake. As a judge for the initiative I have been involved in selecting the finalists and it has been inspiring.

Open Banking is still in its infancy and has so much potential. I can’t wait to see where we are this time next year.