Open door

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Open door

October 2019

Miles Cheetham explains how the UK’s Open Banking Implementation Entity is developing a common set of API standards for banks and fintechs to collaborate and create a range of new offerings

The Open Banking Implementation Entity (OBIE) was set up by the UK’s Competition and Markets Authority (CMA) in September 2016 to foster greater innovation and competition following its investigation into the supply of personal bank accounts and banking services to small and medium-sized enterprises.


A new direction

The investigation prompted the CMA to stipulate that the nine largest retail banks in the UK must fundamentally change the way they operate by offering customers the opportunity to securely make their personal data available to other parties, so that they can do more on their behalf.

It resulted in the creation of open banking as a secure way for customers to take control of their financial data using common application programming interfaces (APIs) and data standards that can be used by the developer and innovating community to make sharing financial information simple and safe.

This new technology is creating a more open and level playing field for fintechs and third-party providers (TPPs) to compete with the larger, more established retail banks and the wider financial industry, and it has considerable overlap with the Second Payment Services Directive (PSD2).

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The market has responded enthusiastically. At the time of going to press [in the H2 2019 issue of flow] there were 132 regulated providers of open banking-enabled products, made up of 83 TPPs and 49 account providers with many more applying to the Financial Conduct Authority for regulatory authorisation.

Beyond this regulatory driver, the OBIE is currently working with TPPs and banks to explore the opportunity for the creation of further premium and commercial APIs which go beyond the regulatory requirement, such as age verification. These will create an even more comprehensive set of common standards around which TPPs and banks can continue to build their products.


User cases

Open banking will continue to transform the way consumers and small businesses manage their money, providing access to extraordinary new services that will solve everyday problems. For example, consumers today are able to aggregate their accounts from different banks on a single app, enable services that can spot when they are about to go overdrawn and provide a cheaper alternative to the bank’s standard overdraft, or share their transaction history with a loan provider for the purpose of affordability checks as an alternative to normal credit checking.

It means that automated personal financial managers are becoming more sophisticated and accurate; for the financially stretched, new automated debt management and budgeting advice services are becoming available; and new comparison tools can be developed that will prompt consumers to switch to a better savings rate or lower-cost loan.

It also means that, for the first time, customers can initiate payments directly from their personal bank account. So, for example, in the future if you buy something online there will be no need to provide debit card details or for the merchant to keep the card on file.


The opportunity for corporates

There is also an opportunity for TPPs to be part of the Payment Initiation Service Provider community. For example, an online retailer can enable easy payments direct from a customer’s bank account to reduce card interchange fees. New streamlined payment options based on this technology will continue to develop over the next two to three years and will make a fundamental difference to the payment options available for any company that is transacting directly with the end-consumer. In effect, this improves the customer experience, creating innovative new payment methods and saving money for the merchant.


Moving forward together

The OBIE will continue to manage the ongoing development of the standards, support the banks and TPPs, and manage the Directory, which is a way of checking that the parties within the ecosystem are regulated.

There is increasingly a lot of discussion about the convergence of the different standards around the world, such as with the Berlin Group in Europe and with similar bodies in the US, Canada and Australia. There is definitely an appetite for common global standards.

The CMA may have been the original torch-bearer to push for change, but this need for common standards around sharing personal data securely and seeking the right level of protection and control are global trends. And the world is watching.

Miles Cheetham is Head of Propositions at Open Banking Ltd

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