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From open banking to open finance 

open banking

It’s over two and a half years since the UK’s Competition and Markets Authority (CMA) regulated that banks provide customers with the choice to share their account data with third-party providers, paving the way for the first wave of open banking services.

Leon Muis, Chief Business Officer at Yolt Technology Services explains in the last year alone, open banking usage has more than doubled and 3 million UK consumers and businesses now use open-banking enabled products to manage their finances, access credit and make payments.

Account information services (AIS) mean consumers can pull all their various accounts into a single view via an app or grant access to lenders to smooth the application process for loans or mortgages.

Payment initiation services (PIS) allow consumers to pay online retailers straight from their bank account without using a credit or debit card. Data enrichment services can help with everything from budgeting and accounts, to protecting against fraud or finding the best deals on financial services. The benefits to those using open banking are huge.

But despite how this technology can, and will, transform financial services, it hasn’t gone nearly far enough. Open banking technology itself is relatively new and consumer knowledge, trust and demand for services will grow over time.  This is partially due to businesses being slow to embrace the opportunities. For example, six out of the UK’s nine largest current account holders missed the CMA’s January 2018 Open Banking deadline and had to be issued with new directives and implementation dates.

Even now that the regulatory requirements have been met, though, the limitations frustrate efforts to promote greater uptake. To give the most obvious example, APIs are limited to payment accounts – principally current accounts and some credit card accounts. A few banks have proactively included savings accounts, but they’re in the minority. That limits the benefits and use of account aggregation tools, for instance, since many customers still can’t get a single view of all their accounts. And that has a direct impact on demand, take up and consequently awareness.

Nor should it stop at savings accounts. The benefits of open banking could equally be felt with mortgages, investment accounts, pensions, and insurance if they are all included on APIs. Consumers could not just quickly move money between accounts, but manage their entire financial footprint, in one central place. They could save with automated switching and renewal services tailored to their actual needs, get faster, cheaper finance, or tailored debt advice.

In short, we need to stop thinking just about open banking and start thinking about open finance – and ultimately open data. Yet with the drive to boost uptake of open banking services at the forefront of the industry’s mind, open finance seems a long way away.

Sticks and carrots

However, the tide may be turning as the FCA’s Call for Input on open finance was published last December. It’s open until October and suggests that regulators will have a significant role in driving the development of open finance, as they did open banking. And it’s right that they should – not least to ensure that the less technological and financially sophisticated businesses, don’t miss out on the opportunities that open finance presents.

But the financial services industry shouldn’t have to wait to be compelled to develop the next generation of open finance solutions. Open banking has demonstrated the business benefits in terms of lower costs, increased efficiency, improved customer insights, better retention, and new markets.

The future offers even greater possibilities, and there is real hope universal adoption will take place over the next few years. Infact the signs are good-with hundreds of thousands of consumers and businesses signing up each month. And, as such, it will likely be those who make the first moves to embrace open banking and open finance technology who will be best placed to reap the rewards.

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From open banking to open finance 

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