The last word: Amy Kroviak, Global Corporate Affairs Consultant, Co-founder, Open51
As the pandemic puts the pedal to the metal for Open Banking fintechs, is the market set to outpace regulators?
We are currently navigating unchartered territory due to the Covid-19 pandemic. For many of us, technology is at the forefront of helping us manage this crisis and adapt to a virtual world of work – keeping us connected whilst on lockdown, but also driving greater efficiencies and opportunities to maintain ‘business as usual’. Perhaps surprisingly to some, in these early days of the pandemic Open Banking technology has quickly assumed an important role as an enabler of products and services that can help solve some of the challenges we now face.
From personalised debt advice, fast access to finance for SMEs, and easy, secure ways to send digital payments, there are many existing Open Banking enabled products that can help consumers and SMEs during this period of uncertainty. And, just weeks into the crisis in the UK, several Open Banking fintechs have collaborated on new initiatives, products and services to support consumers and SMEs. Partnerships such as Covid Credit, established to help self-employed individuals access government support, and the formation of a fintech taskforce to help SMEs access funding during the crisis, demonstrate how agile and relevant the Open Banking sector is.
As the saying goes, ‘technology waits for no one’ and the pandemic has not, as some have feared, slowed down the progress of Open Banking. Rather, it is providing opportunities to promote existing Open Banking enabled products and develop new ones that deliver value to millions. Post the pandemic, it is possible that there could be a significant increase in consumer adoption as a result.
Of course, the pandemic will lead to changes in the fintech and wider financial services sectors that will impact Open Banking. In the short term, incumbent banks and large financial institutions will likely shift attention away from innovation to focus on required, core business needs. For Open Banking, much needed improvements to API performances could be delayed, for example, as well as the further development of payments functionality. In addition, the pandemic will likely impact smaller fintech start-ups more negatively than more established fintechs, reducing the number of innovating firms in the sector. Investment also may become scarce, especially for firms with less flexible business models who are not able to adjust their costs or have less stable revenue streams.
As unpleasant as some of these changes may be, they are hurdles to overcome rather than a derailment of Open Banking. It is important to remember that Open Banking is all about data which has a value for consumers, SMEs, the market and UK plc. In the recovery period and beyond, there will be a growing need for products and services powered by Open Banking technology. Consumers, as well as stakeholders including the Government, will value products that provide personalised solutions to long term challenges such as financial inclusion, for example, and broader access to finance for SMEs. Consequently, financial sectors eager for recovery – savings, mortgages, insurance, pensions – will hasten the development of Open Finance.
Though the approach to Open Finance’s development may vary considerably from Open Banking’s. While the pandemic has injected further momentum in the commercial arena, with fintechs operating with a sense of urgency, seizing opportunities to expand and further develop the market, it appears to have had the opposite effect on the regulators. The FCA has delayed its Open Finance Consultation until 1 October, over six months from the original deadline. The CMA’s recent decision on the revised roadmap for Open Banking acknowledged that amendments were required, due to the pandemic’s “clear impact on timing”. We now await details of what will be delayed and for how long. We also await the Government’s plans for Smart Data following its consultation last summer.
In the UK Open Banking was mandated by regulation that focused on improving the market for consumers; helping them make the most of their money. Consequently, Open Banking has been customer-centric in its design with open API standards and implementation guidelines to help ensure good customer experiences and outcomes. Things could be very different for Open Finance as the market overtakes regulators.
But does it matter? At present, when we are all understandably focused on helping each other manage such an unprecedented crisis – perhaps not. However, post transition and recovery, it could be a different story. Without a strong regulatory foundation, commercial advantage will inevitably creep in. The customer centric approach of Open Banking will be eroded. When the regulations are clear that it is the consumer who owns their data, would this be acceptable and an appropriate foundation to develop Open Finance and the Open Data economy?