Member Article

Since the introduction of the second Payment Services Directive, Open Banking has continued to grow in the UK. Estimates put the number of users at 5 million[1] and, more so than ever, there is confidence that Open Banking initiatives are finally making inroads into becoming embedded within the way in which UK consumers use financial services in the UK.

Perhaps being both a financial services lawyer and a lover of technology means I am firmly in the target market for Open Banking, but using Open Banking initiatives, such as payment initiation services providers and account information services providers, has become an everyday part of my financial life. Whether that’s buying Christmas presents online without the need to rummage around for my misplaced wallet (although that exercise has become mildly simpler thanks to a certain technology company’s tracking peripheral linked to my mobile phone…) or having the flexibility to top-up an ISA offered by one firm by rounding up transactions made on my credit card offered by a completely different firm. It is easy sometimes to take for granted the ecosystem that has developed over the last few years.

But where do we go next? Open Finance is the next logical step but that is a far more encompassing undertaking than what we have seen with Open Banking. Whereas Open Banking is, largely, limited to payment accounts, Open Finance has far more loftier ambitions around adopting a similar framework and initiatives which cover near enough the entirety of financial services which customers interact with – be it consumer credit, insurance, mortgages, investments or pensions. Invariably the hope is that a wealth of data and information is built up to give a more complete picture of a customer’s financial status and circumstances. This is effectively the fuel which can help drive practical and useful use cases for customers.

The possibilities are nearly endless but such an undertaking brings with it complexity for firms and regulators but even getting started appears daunting. The drive to introduce and subsequently adopt Open Banking initiatives was helped, in a large part, by the Competition and Markets Authority’s Retail Banking Order in 2017 which effectively gave the direction for some of the major UK banks to facilitate Open Banking.

The concept of Open Finance does not have any equivalent direction or order, either from the Competition and Markets Authority or indeed from the Financial Conduct Authority. And therein lies the problem. Without one particular regulator or entity driving Open Finance forward, it becomes increasingly difficult to help lead the sheer number of financial services firms, all with their own valid thoughts, opinions and ways of working, into the world of Open Finance. While we may define each as being a financial services firm, that ultimately fails to appreciate the nuances and distinctions between those operating in, for example, the consumer credit market and those operating in the insurance market.

It remains to be seen what journey Open Finance will ultimately take. There is certainly an open road out there with plenty of willing consumers. But, to date, there seems to be no roadmap plotted out to help reach the destination.

The FCA published a feedback statement in May 2021 addressing its high-level proposals to start thinking about how and roadmap could be developed, but since then it has been eerily quiet on that front.

References
[1] As of January 2022 - https://www.openbanking.org.uk/news/open-banking-passes-the-5-million-users-milestone/

 

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