Industry Insight: Yvonne Dunn, Pinsent Masons

20 May 2019

Yvonne Dunn leads the financial services technology practice at law firm Pinsent Masons.

Open Banking is ushering in a brave new world, with many possibilities as to how it could develop. Already parts of the industry are expanding the discussion from Open Banking to Open Finance – looking beyond banking to additional applications.

Open Banking is also creating opportunities for related services, such as digital IDs and tokenisation. It is the catalyst for collaboration among established financial services businesses and fintechs. Meanwhile, the big technology providers are exploring how to capitalise on these developments. So far, so exciting… but we must make sure that Open Banking is running on the right rails before moving too fast to expand it.

Since its formal launch in the UK in 2018, a lot has happened in Open Banking. Much of it has been technical: putting in place technology and processes to meet regulatory requirements. For example, the banks released their initial versions of the read/write APIs developed by the Open Banking Implementation Entity and the process for third party providers (TPPs) to follow for banks to share account data with them.

There are many opportunities to develop products and services based on Open Banking. These apply to TPPs who want to enter the market as well as established banks who want to develop new products or services for their customers, rather than being pushed into the role of a ‘data pipe’ by fintechs.

There are also indirect opportunities. In identity, solutions are springing up to assist with digitally verifying a customer; customer authentication whenever they choose to engage with digital financial products; and evidencing customer consent to the sharing of data.

Open Banking is a catalyst for a revival in developments around digital IDs. If these new solutions are to work, it is important that access to digital products and services is simple. Trusted, verified digital IDs controlled by customers, which can be ported from one financial provider to another, could offer a solution.

Already talk is shifting from Open Banking to Open Finance, applying Open Banking principles to financial products outside the current account model. For example, in the UK the Department for Work and Pensions has plans to compel pension providers to make consumer data available, as well as government making state pension data available.

There is also the possibility of wider data integration, including data from wearable devices and smart homes as well as bank accounts, all of which can combine to offer more tailored products for customers.

The pace of growth is exciting, as is the potential breadth of opportunity that arises. However, there are still issues to be ironed out. In particular, ensuring that customers have a frictionless experience and that account data is secure.

It is essential for the customer journey that bank-powered APIs are reliable: they need to be available when required and return quick responses. The rules on strong customer authentication (SCA) come into force in September. If Open Banking is to catch fire, it is important that this runs smoothly.

If the customer journey is ‘clunky’ because the bank’s authentication processes take too long or don’t work properly, customers will lose patience and default to traditional payment means. Currently, the third parties offering new products and services are dependent on the banks for that authentication step, and more work is needed to smooth it.

Communication between banks and TPPs must be secure and comply with the European Banking Authority’s regulatory technical standards (RTS). Those RTS state that APIs need to use eIDAS certificates for identification. eIDAS has been around since 2016 and is intended to provide a regulatory environment for electronic identification and electronic trust services.

There seems to be consensus that eIDAS can provide the solution for a trust framework around Open Banking, but the issue is whether there is time to get this running smoothly before September. Adopting eIDAS when the market is not ready might end up creating a solution that is worse than the current framework.

Open Banking offers some fantastic opportunities, including many which go well beyond just banking. To make sure that customers go along with the journey, it is important that underlying teething issues are dealt with. Otherwise there is a risk that the positive impact is delayed. Assuming we can do this, the possibilities are exciting.

Yvonne Dunn leads the financial services technology practice at law firm Pinsent Masons.