NatWest calls for major change in banks and fintechs’ approach to Open Banking
In a report published today on ‘The (Unmet) Potential of Open Banking’, Oxera identifies the key economic obstacles that are holding back the wider adoption of Open Banking and the development of new innovative use cases that go beyond the regulatory mandate.
NatWest Group commissioned Oxera, an economics and finance consultancy firm, to produce the report, with the aim of providing economic analysis and insight that will support the upcoming decision-making on the next phase of Open Banking in the UK.
Since launching in 2018, Open Banking has been a qualified success, with over 7 million businesses and consumers having used it to date. However, this only represents around 10% of consumers and SMEs. Open Banking payments, by several orders of magnitude, are dwarfed by more traditional payment options like cards or direct debits.
The report identifies the economic challenges that currently prevent Open Banking from reaching its full potential. These include a lack of commercial incentives to develop or enhance APIs, and a lack of alignment between ASPSPs (Account Servicing Payment Service Providers – i.e. banks) on the benefits of Open Banking. There are also significant challenges around managing trade-offs, for example in relation to security and convenience, within the Open Banking ecosystem.
There are three possible routes forward to address these challenges. The first two are already under discussion, and the Oxera report suggests an additional third option:
- Mandate banks to offer a wider range of use cases: Expand the scope of Open Banking and require banks to provide the necessary data via APIs for free.
- Commercialised APIs: Encourage banks to expand Open Banking use cases through Premium APIs.
- A multi-party system: Enable multi-party systems to emerge that have a commercial incentive to grow the Open Banking ecosystem through the design of new, flexible frameworks for industry collaboration.
The report notes that different routes may be optimal for different Open Banking use cases. Some use cases may benefit from hybrid approaches: for example, mandating the development of an API, but leaving its commercialisation to the banks themselves, or to a multi-party system.
Claire Melling, Head of Bank of APIs at NatWest Group, commented: “This report makes it clear that banks, fintechs and regulators need to work together to design new, flexible frameworks and commercial incentives that will support a far wider range of Open Banking use cases. By acting on the recommendations in this report, we can enable Open Banking to reach its full potential and, ultimately, deliver new and enhanced propositions that will improve customer choice and experience.”