The US is a runaway leader in the use of banking data for wealth management products and advice. Personal financial management (PFM) tools are used by over 30% of US consumers. These draw data from banks and other financial institutions to offer a view of credit card, bank, mortgage, investment and pension data within a single app. Budget tracking, expense analysis and overspending alerts are common features. Advisers use these tools to obtain an up-to-date picture of a client’s financial situation and spending patterns.
Open banking progress in the UK
2007
EC publishes PSD1, introducing the concept of third-party participation in the payments sector.
2014
Open Data Institute and Fingleton publish report recommending open banking to stimulate banking competition. CMA launches investigation into supply of retail banking services.
2015
HM Treasury commits to delivering open banking. OBWG formed. EC publishes requirements of PSD2.
February 2016
CMA publishes report introducing open banking as a remedy to address lack of competition and innovation and OBWG report recommends creating an open banking standard using an API.
September 2016
Open Banking Implementation Entity formed to manage technical aspects and governance of the initiative.
February 2017
Nesta introduces the Open-Up Challenge, a competition and support initiative.
November 2017
Chancellor expands the scope of open banking.
January 2018
PSD2 transposed into national law. Nesta Open-Up Challenge stage 2 applications open.
In the UK, the Competition and Markets Authority (CMA) has compelled banks to make data available to third parties and to adopt a common technical standard for this data to be drawn through automated feeds, such as PFM tools. The initiative is called the Open Banking Standard.
The UK moves beyond PSD2The EU initiated the move towards open banking. The revised Payment Services Directive (PSD2) was transposed into member states’ law in January 2018. It requires that all payment services providers allow authorised third parties to access customers’ accounts to extract data or initiate payments, without having to use the banks’ online services. It also sets standards for security measures. But the UK, through the CMA, has gone well beyond minimum requirements, demanding that the largest banks collaborate in their implementation process through an Open Banking Standard. PSD2 stops short of requiring common technical standards.
In 2014, the UK government commissioned the Open Data Institute and Fingleton Associates to investigate open banking. In the same year, the CMA launched an investigation into the supply of retail banking services to consumers and smaller businesses. Both investigations concluded that greater access to data should result in increased competition and innovation in banking and that banks should create standardised APIs, accessible by authorised third parties.
The initiative
HM Treasury asked the Open Data Institute to outline a plan to implement the open banking initiative in the UK. To do this, it set up the Open Banking Working Group (OBWG), comprising industry experts, and consumer and business representatives. To manage the technical and governance aspects of the initiative, a new organisation called the Open Banking Implementation Entity was created. This is funded by eight UK banks and one building society and overseen by the CMA, FCA and HM Treasury.
To kick-start innovation, Nesta, an innovation foundation, was mandated to identify and support 20 small technology companies to develop new services, apps and tools, using open banking functionality, that help UK small businesses.
Chris Gorst, fintech challenge prize lead at Nesta, says: “A risk with PSD2 is that you get fragmented solutions, with individual banks coming up with their own different ways of complying. With open banking in the UK, the banks have to agree a common standard. For developers wanting to develop new services, and ultimately for banking customers, that’s really good news.”
In his Autumn Budget 2017, Chancellor Philip Hammond announced that payment accounts such as credit cards and ewallets were to be included in the initiative. Chris suggests: “Where this logically ends is not just payment products, but savings products, pensions, mortgages – an open ecosystem for all financial products. That would revolutionise people’s ability to take control of their financial lives.”
The OBWG estimates that, should UK consumer uptake of PFMs reach US levels of circa 32%, it would suggest a 10–15 million potential. But Chris warns against expecting too much too soon as, if uptake is slow, some might say people don’t want it because they’re happy with the way things are.
The original version of this article was published in the Q1 2018 print edition of The Review. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'
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