Insight: Faith Reynolds, Independent Consumer Representative for Open Banking Implementation Entity

20 Sep 2019

The last couple of months has seen a flurry of announcements and reports considering Open Banking. Key items to note include the Bank of England’s Future of Finance report, The Department for Business, Energy & Industrial Strategy’s (BEIS) Smart Data Consultation, the Financial Conduct Authority’s (FCA’s) work on Open Finance and ethics and the ODI/Fingleton review of Open Banking so far.

All of them acknowledge the potential to drive better outcomes for consumers by unlocking the power of their data and likewise the importance of getting it right to avoid the risks. Much emphasis is therefore being placed on learning from Open Banking.

It was into this storm of activity that we were able to publish our own report looking at the ‘Consumer Priorities for Open Banking’ as the independent consumer and SME representatives for Open Banking. We focused on the needs of people and small businesses before exploring the potential value Open Banking could deliver and the changes that are needed to make it a reality.

We used the FCA Financial Lives dataset to explore consumers’ needs. The survey is made up of 13,000 consumer records. The FCA makes the data available as open data and it is a great free resource for consumer insight. We looked at consumer resilience to small financial shocks and the use of unsecured lending, developing stories to explore the needs of our ‘avatars’ – pen profiles we could identify in the data.

The FCA’s survey doesn’t cover small businesses and one of the things that surprised us was the lack of small business data available generally to understand needs for firms to help target their propositions. A definite gap in the market.

Overall, our analysis suggested people and small businesses could stand to gain £18bn a year from Open Banking, but this doesn’t include all the financial health benefits that could accrue from the increased visibility and control of our finances. With 18% of the nation ‘overstretched’ and on the edge of crisis, Open Banking could be transformative, not just for a handful of people but for significant numbers.

Using our avatars, it became possible to see how Open Banking could extend its reach to people who typically seem unreachable because they are not online. Similarly, people who are asset-rich have money tucked away that could be working harder for them, but they are less likely to be online and more likely to be loyal to existing providers.

Creating accessible and affordable interfaces that are more closely aligned to consumers’ preferences is crucial. Small businesses need solutions that help them become more productive, borrow more effectively and get returns on their free cashflow.

If you’re on a bad deal with your mortgage or finding it hard to keep on top of your finances, Open Banking services could have a big impact. Other value drivers are cheaper credit and a better return on high balances and savings. Although there is an increase in firms using Open Banking for credit profiling, we haven’t seen much innovation in the products coming to market – there is real potential here for fintechs to do things differently. Similarly, there is little growth in market solutions to help people make their high balances work harder for them.

We put forward our priorities to provide a steer to the OBIE Implementation Trustee, government and industry.

Of most urgency is getting the implementation of the APIs working reliably and avoiding the cliff-edge created by the introduction of SCA in September. Looking ahead, it’s working out the governance of OBIE so it can extend the APIs to other products and enable Open Finance. Open Banking alone is not enough. Consumers need help across a much wider range of financial products.

Digital identity is a key enabler and could make journeys much more convenient and secure. But ultimately, a new regulatory regime needs to be established for data sharing to deal with issues like the onward sharing of data, liability and accessible redress. The BEIS Smart Data Consultation makes proposals which could help.

Government, regulators and industry need to take action quickly to ensure the right governance is in place. We suggest the Digital Markets Unit could provide a role in delivering cross-cutting policy for data-sharing, while the Smart Data Function acts as its delivery arm for implementation. Open Banking could become Open Life.