Early Returns From Open Banking Show a Mixed Picture

Open Banking kicked off in the UK this past January. Thus far we’ve seen slower adoption among traditional banks, a small uptick in wide public knowledge and some digital banks becoming early leaders.

The promise of open banking for the customer looks to be clear, more access and control over their data to find the best financial services at the best cost. Fintech companies see great promise with the program as they are hoping it levels the playing field against the traditional powers.

Banks have not really stepped into the new world until recently as HSBC has stated they will be set to go live with a product by early May, RaboBank is creating a mobile ecosystem and RBS has explained they are working on solutions which includes a stand alone digital bank.

Digital banks Monzo and Starling Bank have already established themselves as early leaders in the market with their open APIs. Both have created financial marketplaces to allow for easy integration and access to different banking services.

Consumer knowledge of the program has not seen a big uptick as most customers across the UK and Europe still do not know of the changes or even the term open banking. Part of the reason for slow momentum among consumers is that banks have been slow to adapt. Most people still use a traditional bank and until they fully comply it will be an uphill battle to get the wider public to full grasp what the term open banking means.

Speaking at the Innovate Finance Global Summit in London this week Imran Gulamhuseinwala, the Open Banking Implementation Trustee for the Competitions and Markets Authority (CMA), talked about open banking lowering the barriers to entry and changing the traditional definition of financial services firms. Computerworld UK reports on Imran’s speech where he explains:

If you really roll that forward an industry sector becoming more open is not just about smaller companies coming in but I really do anticipate non-financial services incumbents coming into this space. Whether they are mobile phone operators, pure tech companies or insurance companies. All of those lines are going to begin to blur.

One of the early headwinds has been the preparation of sectors other than financial services. Consult Hyperion research shows that UK retailers were not aware and were unprepared for these changes. More than half of UK retailers were unaware of PSD2 and 67 percent of respondents who did know were not yet prepared for the changes. For retailers the biggest impact is on payments. The changes will make phone-based, watch-based and other forms of payments more widely used. Being able to handle the various forms of payments is crucial for retailers as they don’t want to lose out on potential business.

We are still in the very early stages of open banking and while returns have been mixed so far there is still great promise with the program. Even across the Atlantic, U.S. regulators have been starting to experiment with the core tenets of open banking. The CFPB has organized data sharing guidelines, though not enforceable, meant to set the stage for possible future regulatory changes.

Leveling the playing field and increasing financial services adoption across Europe is a good thing, even if large banks need to be dragged along. Open banking will allow for customers to control who has access to their data and why. It will create a far more transparent, convenient and fair market for banking services.

  • Todd is the host of PitchIt: the fintech startups podcast, a weekly interview show featuring emerging fintech founders and leading venture capitalists. He is responsible for leading the content team which covers fintech through daily & weekly email newsletters, editorial, virtual events, and in-person conferences. He has been covering fintech, banking, and venture capital for more than 15 years, including speaking regularly at industry events.