Open Banking: How to get it working for everyone in the UK

Ariane Marie

by , Team PensionBee

13 May 2022 /  

May 2022

Woman paying with banking app

Open Banking’s a system designed to connect third-party services with banks and customer banking information to exchange financial data. Third parties, such as budgeting and cash flow management apps, are then able to provide consumers with greater insights and control over their finances enabling them to make better decisions over how they manage their money.

Although Open Banking has only been around since 2018, it’s generated a lot of interest and seen rapid uptake by customers. In 2020 it enabled almost six billion AIS API calls in the UK alone and has attracted over five million users since its launch. But while the numbers suggest Open Banking is a success, it’s also received its share of criticism.

We’ve seen CEOs from different fintech companies express concerns over some of the barriers to entry they need to overcome in order to successfully implement their products and services. And some have even gone so far as to describe Open Banking as a failure.

So, what are some of the challenges which may be holding back Open Banking from making even faster progress and broader adoption and what will it take in order for it to start working for everyone in the UK?

A complex balance between 4 players

A unique challenge in driving the adoption of open banking forward is the sheer number of key players and the relationship between them involved in making it a success. Let’s briefly outline who they are.

Perhaps the most obvious group of players are the banks themselves. As Open Banking relies on bank and transaction data to be shared for the benefit of the customer, it’s essential for banks to make this information available in the first place.

The second group involved are third party providers. They utilise that data to provide services which enable customers to make better use of their financial transaction data. Examples include FinTech companies such as Snoop or Emma whose products give their customers clearer insights into their spending habits to enable them to budget more effectively.

Thirdly, there is the regulator in charge of setting the requirements and best practices of the Open Banking ecosystem. Within the UK Open Banking is regulated by the Financial Conduct Authority who authorises who can use Open Banking APIs, set the timelines for adoption by banks and businesses and ultimately, ensure that customers’ interests are protected.

Finally and most importantly, there are the customers. Open Banking can unlock innovative new services which have the ability to give customers greater control over and easier ways of transacting their finances. But it’s crucial these are effectively communicated so that customers understand the benefits Open Banking can bring to them.

This complex balance and coordination is what makes successful implementation and delivery of Open Banking services so tricky. Open Banking relies on four different players with different interests to move in the same direction and at the same speed to make this innovative technology blossom.

What do we need to make it work?

Although we have described the four key stakeholders involved, ultimately it comes down to the banks and regulators to standardise technological solutions, as well as the rules and expectations around them, effectively. This is so that businesses are able to efficiently design and develop new and innovative use cases, which drive customer engagement and uptake of Open Banking-based applications. Though a lot of work has been done in this area, there is still much more work ahead. Banks and regulators need to continue to work together and be closely aligned over the goals of Open Banking.

Non-uniformity among the banks is one of the major reasons why businesses haven’t been able to make use of the data that Open Banking has to offer and is an issue that regulators should be addressing with more urgency. For example, there’s still no standard functionality around regular payment start dates; some banks allow weekend payments, yet others don’t. Some banks allow same-day Standing Order set up, while others require three days’ notice.

The same’s happening across most Open Banking journeys. Let’s take the example of a simple PIS (Payment Initiation Service) payment. The limit of payments allowed ranges from £2,000-£50,000 depending on the bank. Some banks won’t even allow payments to be made if the payee wasn’t previously saved in the banking app, making the use of Open Banking redundant.

These sorts of differences make the integration of Open Banking complicated and in turn make it harder for third-party providers to develop the almost limitless use cases and the great value customers could derive from them, that such standardisation would provide.

Some big banks have been delaying their Open Banking adoption, partly because they hoped it would go away as fast as it came around and partly because of the technology investment required to make this work. Greater resources need to be put into providing their data in a secure and standardised way for customers to truly benefit.

As a result of the slow and convoluted implementation of Open Banking, users haven’t felt the confidence or the need to start using those services as much as it was initially projected by analysts. As of the first quarter of 2022, only five million users have used Open Banking, in contrast to the 33 million users that was predicted.

What does Open Banking’s future look like?

Despite all the criticism about the speed of implementation, Open Banking’s able to provide tremendous benefits to customers’ financial health. Such clear benefits make Open Banking a technology that is here to stay and will force businesses to find creative ways to utilise it for that purpose.

At the same time, the pressure on banks to provide the data according to the Open Banking Standards needs to be increased. In 2022, banks must embrace the new technologies that will benefit their customers by adopting the necessary technical requirements.

Open Banking’s already changing the way we manage our finances and there are many advantages. These include helping customers make better informed financial decisions, providing innovative services which make transacting personal finances easier and enabling financial products and services to be more accessible to many more people. Open Banking powered payments are also a safer way to set up bank transactions than the traditional standing orders and Direct Debits that represent a higher risk of human error and fraud. But it also opens up opportunities for financial institutions and merchants too – from reducing costs to even leveraging new customer segments which create the potential to increase revenues.

So, although the concerns and the need to address them are legitimate, the key players would do well to remember that making Open Banking work for everyone ultimately benefits everyone and especially their customers.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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