May 20, 2020
Open Finance: The future of Open Banking?
Open Banking allows users to provide secure access to their payments data to Third Party service providers. Consumers and small to medium sized businesses can benefit from a raft of apps and services from regulated suppliers, designed to give them greater financial freedom and data control.
Open Banking adoption
Several innovative applications have been launched into the market to improve the way we budget and save money. Some apps use AI to predict spending patterns and allow users to create micro investment portfolios with unused monthly or weekly budgeted funds, or enhance potential income from traditional interest rates. Others simply move money around accounts which have been authorised by the users to make sure capital is working more efficiently for them.
As we become more time poor, technology is making leaps to reduce personal administrative activities. Though apps of this nature can help, they face significant barriers to adoption.
13 January 2020 marked the 2 year anniversary of the introduction of Open Banking, but a Which? survey conducted in 2019 suggested that up to ¾ of the public were still unaware of what Open Banking means. More telling is the fact that 7 in 10 respondents said they were unlikely to consider sharing access to their financial data, despite the potential benefits in doing so.
Experiences with Open Banking
To put some of these findings to the test, we recently asked some of our staff about their experiences with Open Banking so far. This is what they had to say:
My first experience of Open Banking was purchasing flights for a weekend break. Rather than be directed to a standard payment page after picking the flights, I was prompted to sign in to my online bank. I must admit at first it felt like it could have been a phishing scam, but I did my pre-flight checks to confirm that it was legitimate. The User Experience was slightly cumbersome in all, but it was a great taste of things to come and how this could be streamlined for better consumer outcomes, and immediately obvious how purchasing could look in the future.
There is still considerable hype around, but in recent months I have seen less detail on new and innovative usage. I think there is a lot of potential with it, however, as before, the biggest challenge is traditional red brick banking adapting and adopting change.
Open Banking is here and our future, and is said to increase competition and drive costs down for consumers. Personally, I’ve not taken advantage of it yet, but there should be opportunities for all of us.
Broadly reflective of the Which? findings, whilst arguably closer to Open Banking than most, the clear majority have interacted very little with the tools available, but against this backdrop, over 400 million calls to the Open Banking API were made in March according to Open Banking.org This is alongside a steady upward curve of usage month-on-month.
What is Open Finance?
Open Finance has been coined as the next iterative step to Open Banking, as the FCA calls for input.
The FCA’s vision for Open Finance is:
- Consumers and businesses:
- can grant access to their data to trusted third-party providers (TPPs) and in return gain access to a wider range of financial services/products
- have greater control over their data
- engage with their finances, and are empowered to make better financial decisions.
- Increased use of Open Finance services spurs greater innovation, benefiting consumers by providing a broader range of products and services that better suits their needs.
- Widespread use of new services improves the financial health of consumers and businesses in the UK.
As part of the call, the FCA want to learn how consumers and service providers alike will use the Open Finance services and raise any concerns they may have. Initial line items include maintaining robust GDPR compliance and associated data security.
The call is being made to the following groups:
- banks, building societies and credit unions
- consumer credit firms
- electronic money and payment institutions
- financial advisers
- Fintech and innovative businesses
- general insurers and insurance intermediaries
- investment managers
- life insurers and pension providers
- mortgage lenders and intermediaries
And respondents can do so in writing or online by the deadline of 1 October 2020.
As true innovation inevitably waits in the wings, we ask are these changes driven by want or need? We’re excited to see what this brings…