Undercover report: Why Open Banking APIs might be stifling competition in the UK

A banker who shall remain anonymous has penned this exclusive undercover piece, giving us the insider’s view on why they believe Open Banking APIs may be stifling rather than driving competition in UK Banking.

Writing under the pseudonym “The Stigcumbent” to protect their identity, they want to expose the friction created by Open Banking, and the potential failure to create competition as a result.

Read on for more…

With Opening Banking now stumbling into live testing in the UK it’s a good opportunity to examine the motivations behind it and the part regulatory bodies are playing - for better or worse.

Can legislation stifle competition?

It is something of a contradiction for the Competition and Markets Authority to be introducing greater - “competition” - via a series of legal measures which force nine UK banks (known as the “CMA 9”) to develop a set of effectively identical capabilities to each other. Not only that, more forward thinking entrants into UK banking such as Starling and Monzo have already independently developed equivalent capabilities having realised the “competitive advantage” it gives them. If what customers really want is greater integration of their bank accounts into the services and tools they use to run their lives & businesses, then surely nothing could be more “competitive” than a small number of start-up banks taking the initiative and independently developing features that support this? Necessity is the mother of invention after all therefore why not just allow the most forward thinking banks to differentiate themselves from the "competition" by developing their own APIs and incentivising customers to switch their accounts to them? Why the need to legislate?

"Why not just allow the most forward thinking banks to differentiate themselves from the "competition" by developing their own APIs and incentivising customers to switch their accounts to them? Why the need to legislate?"

Surely mandating a group of otherwise asleep at the wheel incumbent banks to close the gap in capabilities with their newer more nimble competitors only stifles “competition”? In essence they have prevented competition by forcing those who weren't competitive to become so, as a result of other more forward thinking players getting ahead of the game. This is the very opposite of competition.

"Surely mandating a group of otherwise asleep at the wheel incumbent banks to close the gap in capabilities with their newer more nimble competitors only stifles “competition”?"

Levelling the playing field

Whilst few of the high street banks still wrestling with delivery of these new Open Banking APIs might see it this way, the CMA Remedies Package (as it is known) has effectively given them a massive assist and partly levelled the playing field. There's only one thing worse than being forced to invest millions in the development of Open Banking APIs that allow third parties to create value-add products on top of your bank accounts, and that's losing large numbers of customers to another bank that has done it already.

"Whilst few of the high street banks might see it this way, the CMA Remedies Package has effectively given them a massive assist and partly levelled the playing field."

Something that has frustrated not just the CMA but many commentators on UK banking in recent years is the persistently low number of personal and business banking customers who "switch" their banking provider. Huge efforts have gone into stimulating this practice such as the Current Account Switching Service (CASS) which attempts to remove as much of the friction from the process as possible and also other less successful initiatives to help customers capture and independently work with data from their banks such as the largely defunct 'MYDATA' scheme.

When competition exists, mandate everyone else to join in

Let's face facts here - perhaps the reason that consumers and businesses persistently fail to switch their banking providers in the numbers hoped for is not because we still haven't made the process easy enough for them, but because none of the incumbent UK banks have historically provided a significant enough product differentiator to make it worth bothering with! Hence it is deeply ironic that when presented with a number of new entrants into UK banking that are finally evolving product and features in new and innovative ways (such as openly encouraging third parties to integrate their own propositions via APIs) the "official" CMA response to this is to mandate the "competition" to do the exact same thing. You quite literally couldn't make it up.

"It is deeply ironic that when presented with new entrants into UK banking evolving product and features in new and innovative ways...the "official" CMA response to this is to mandate the "competition" to do the exact same thing.

"Gross failings" of the CMA

The gross failure here of the CMA is to persistently expect genuine competition in UK banking to emerge from within the status quo itself and to believe that all that is required to make it happen is the banking equivalent of comparethemarket.com. People will migrate naturally via word of mouth (OK maybe via their Twitter & Facebook networks rather than quite literally word of mouth) once truly revolutionary banking products start landing in the marketplace and demonstrating their value. Tide Banking for example today claim that 7% of all new business current accounts opened in the UK are with them - this has been achieved not via the efforts of the CMA to stimulate competition but by Tide themselves being competitive just like Starling, Monzo and many others besides.

"The gross failure here of the CMA is to persistently expect genuine competition in UK banking to emerge from within the status quo itself"

So whilst the CMA and large swathes of the media await the new Opening Banking "revolution" to take hold (courtesy of their new APIs) - spare a thought for the smaller players here that already went out and built this stuff simply because we needed it. - Stigcumbent