The UK’s focus on Open Banking commenced in 2015 through the creation of the Open Banking Working Group (OBWG) set up at the request of HM Treasury.

Bringing together industry experts from the banking, fintech, consumer and business communities, it developed the first Open Banking Standard framework which guided how Open Banking data should be created and used. The mandate to develop and implement the Standard emerged from the Competition and Markets Authority (CMA) retail banking market investigation which concluded in 2016.

The CMA’s review found that the UK’s older and larger banks did not have to work “hard enough” to win and retain customers. One of the key reforms (‘remedies’) was the delivery of Open Banking, which would enable customers to share – with their express consent – their own bank data securely with third parties. The remedy mandated the nine largest banks in the UK (the ‘CMA9’) to build and fund an Open Banking Implementation Entity that would deliver the reforms in a broad and inclusive way through consultation with challenger banks, fintechs, third parties and consumer groups.

For the large retail banks subject to Open Banking, the new rules present a huge challenge. While much has been made of the technological and customer experience innovations new companies are bringing to market, large banks had been able to use their ownership of customer data to defend their positions in the market.

However, under the new Open Banking regime banks, building societies, credit card issuers, e-money institutions, and others (known as Account Servicing Payment Service Providers ASPSPs) must provide an electronic interface (APIs) that allows third parties (Payment Service Providers or PSPs) to operate an account on behalf of the owner. This “opens up” the banking system to organisations that can provide better ways of making payments, for example through new and better user interfaces (including Apps), as well as completely new services that could depend upon an analysis of how consumers make and manage their payments.

Technology therefore continues to be the driving force behind the progression and innovation of the financial services and retail payments sectors. However, the ability of new entrants and smaller providers to compete fairly with the larger and more established retail banks is fundamental to the success of Open Banking in the UK. The challenge for Government and policy makers is to ensure that the implementation timescale of the Open Banking reforms is not delayed and that the regulatory balance ensures that smaller providers and new entrants can compete fairly with the larger and more established retail banks.

How TFA can help

With a wide range of relevant sectoral policy expertise including in: technology, small businesses, digital communications, payments and financial services, national, regional, and mayoral engagement, and campaigning, TFA can help your organisation understand and shape the emerging financial services, Open Banking and payments regulatory and policymaking landscape.