The world turns to Open Banking
Adam Davis
Head of Delivery
At 11:FS we like to say that digital banking is 1% finished, well the same is true of Open Banking. The unknown potential of the regulation far outstrips what is being done right now. And that potential has caught the imagination of foreign regulators.
The US treasury this month published a report into fintech recommending a watching brief on the OBIE (Open Banking Implementation Entity - the body responsible for governing Open Banking) and Open Banking in the UK. In Australia, all major banks will need to make data available on credit and debit card, deposit and transaction accounts by July 1st 2019 after the federal government accepted recommendations following a review of Open Banking. In Israel, traditionally at the forefront of technological innovation, but which has a relatively archaic banking infrastructure, the central bank has endorsed the establishment of Open Banking standards and the standardisation of API interfaces.
It’s been a busy month and it seems like everyone's jumping on the Open Banking bandwagon.
It’s good news for competitiveness, should be good news for customers who should benefit, and is definitely an endorsement on the UK’s Competition and Markets Authority (CMA), the watchdog responsible for mandating Open Banking and which can take the plaudits and bask in some decent headlines.
That said, the real fruits of regulation like Open Banking, PSD2, and the versions of it we are seeing popping up around the world, are yet to come. They are a richer, better banking experience for the customer, one which proactively improves a user’s money management, provides customers with supremely tailored financial products which are more accessible, transparent and faster to acquire. At least that’s what I want from it. It’s technically possible as well - most of the banks have a vision that reads similar - but it’s some time away yet.
Passed the finish line, some skating on thin ice, the CMA 9 regulated banks have just about met most of the mandatory deadlines imposed on them for the required releases in January 2018. Hurrah. But the end user, for whom these regulations are designed to benefit, would be forgiven for shrugging their shoulders shortly after inquiring politely as to just what Open Banking actually is; such is the peripheral impact it has made thus far to the mass market. You can’t blame us. Nothing has hit the market worth getting excited about, yet. Why? The answers are multiple: Mandatory requirements that have stretched the capabilities of banks, legacy technology that needs to be manhandled or skirted around to achieve the mandatory scope, and a lack of education in banks on the transformative power of Open Banking/PSD2, which in turn is constraining budgets.
Meeting the mandatory requirements and making available the payment, account and reference data mandated by the regulations has been no picnic so getting over that hurdle is an achievement in itself for the CMA 9. Also not to be underestimated is the vast amount of work and learnings that the banks have acquired via the creation of internal operating processes to support the regulations. New service lines have been created, such as the onboarding and servicing of TPP’s (Third Party Providers), and the implementation of regulated consent management models. It’s well within the banks’ interests to refine these going forward - although the banks have to service the TPP’s within the confines of the regulations, if they want to move to service non mandated 3rd parties to promote collaboration and product offerings, then their service lines need to be best in class to attract the best partners. This pressure to service TPP’s has seen a real positive shift in the collaboration between Banks and Fintechs across the industry. You only have to read the news to see the latest bank / fintech integration that has its foundational roots in Open Banking (read Flux’s integration with Barclays as a nice test case). Although the discretionary use cases are embryonic, it is a good start, and shows the willingness of banks to work with 3rd parties which can add significant value to their products and which enhance, rather than cannibalise the bank’s offering. Stepping back, the OBIE has set a precedent for governing over a disparate set of stakeholders (fintechs, TPP’s, incumbents etc) but that’s a huge task and it was never going to be a walk in the park. That said, the oversight of the managed roll out plan has been achieved. They are holding the CMA 9 to account by pushing for more adoption, better customer journeys and more awareness. These are baby steps, but given the subject matter and the number of interested parties, they can lay claim to implementing the beginning throws of a regulation in an apolitical and fair manner.
Even though it’s only 1% finished, Open Banking is demonstrating huge potential. There are many aspects to the current implementations that the industry have got right. Hence the interest. Next up, we need the creation and launch of the propositions that will cement the results of Open Banking into the conscious of customers. That’s the holy grail. The ‘short term’ trail to the grail is the refinement and adoption of the payments journey, which will give third parties the ability to provide actionable takeaways and propositions to customers rather than current passive services by combining mature AISP and PISP offerings. Account aggregation services, the bedrock of current releases, are timely, and address a valid, important and underserved customer job (underserved as prior to this it was virtually completely un-addressed). But it isn’t and shouldn’t be the end point. Plenty more space therefore for the industry to move into, trailblaze, and set positive precedents for foreign regulators looking to encourage financial competitiveness in their domestic industries. It’s going to be fun to watch, build, test and review. Let’s see where we go from here. You can keep up with all the latest, relevant, Open Banking info via 11:FS.com. Adam Davis is Head of Delivery at 11:FS, if you’ve got any thoughts on what he has to say about Open Banking you can leave a comment below on get in touch with him @adamd8 on Twitter.
Where are we now?
Passed the finish line, some skating on thin ice, the CMA 9 regulated banks have just about met most of the mandatory deadlines imposed on them for the required releases in January 2018. Hurrah. But the end user, for whom these regulations are designed to benefit, would be forgiven for shrugging their shoulders shortly after inquiring politely as to just what Open Banking actually is; such is the peripheral impact it has made thus far to the mass market. You can’t blame us. Nothing has hit the market worth getting excited about, yet. Why? The answers are multiple: Mandatory requirements that have stretched the capabilities of banks, legacy technology that needs to be manhandled or skirted around to achieve the mandatory scope, and a lack of education in banks on the transformative power of Open Banking/PSD2, which in turn is constraining budgets.
So what have we got right?
Meeting the mandatory requirements and making available the payment, account and reference data mandated by the regulations has been no picnic so getting over that hurdle is an achievement in itself for the CMA 9. Also not to be underestimated is the vast amount of work and learnings that the banks have acquired via the creation of internal operating processes to support the regulations. New service lines have been created, such as the onboarding and servicing of TPP’s (Third Party Providers), and the implementation of regulated consent management models. It’s well within the banks’ interests to refine these going forward - although the banks have to service the TPP’s within the confines of the regulations, if they want to move to service non mandated 3rd parties to promote collaboration and product offerings, then their service lines need to be best in class to attract the best partners. This pressure to service TPP’s has seen a real positive shift in the collaboration between Banks and Fintechs across the industry. You only have to read the news to see the latest bank / fintech integration that has its foundational roots in Open Banking (read Flux’s integration with Barclays as a nice test case). Although the discretionary use cases are embryonic, it is a good start, and shows the willingness of banks to work with 3rd parties which can add significant value to their products and which enhance, rather than cannibalise the bank’s offering. Stepping back, the OBIE has set a precedent for governing over a disparate set of stakeholders (fintechs, TPP’s, incumbents etc) but that’s a huge task and it was never going to be a walk in the park. That said, the oversight of the managed roll out plan has been achieved. They are holding the CMA 9 to account by pushing for more adoption, better customer journeys and more awareness. These are baby steps, but given the subject matter and the number of interested parties, they can lay claim to implementing the beginning throws of a regulation in an apolitical and fair manner.
Looking forward, what is the holy grail?
Even though it’s only 1% finished, Open Banking is demonstrating huge potential. There are many aspects to the current implementations that the industry have got right. Hence the interest. Next up, we need the creation and launch of the propositions that will cement the results of Open Banking into the conscious of customers. That’s the holy grail. The ‘short term’ trail to the grail is the refinement and adoption of the payments journey, which will give third parties the ability to provide actionable takeaways and propositions to customers rather than current passive services by combining mature AISP and PISP offerings. Account aggregation services, the bedrock of current releases, are timely, and address a valid, important and underserved customer job (underserved as prior to this it was virtually completely un-addressed). But it isn’t and shouldn’t be the end point. Plenty more space therefore for the industry to move into, trailblaze, and set positive precedents for foreign regulators looking to encourage financial competitiveness in their domestic industries. It’s going to be fun to watch, build, test and review. Let’s see where we go from here. You can keep up with all the latest, relevant, Open Banking info via 11:FS.com. Adam Davis is Head of Delivery at 11:FS, if you’ve got any thoughts on what he has to say about Open Banking you can leave a comment below on get in touch with him @adamd8 on Twitter.