By Nick Caley, VP of UK and Ireland at ForgeRock, shares three steps regulators can take to keep the consumer experience at heart.
When searching for emblems of consumer-centric financial innovation, one need look no further than UK Open Banking. With a core aim of better serving customer interests when interacting with financial entities, many countries are watching for the UK to pave the way for Open Banking worldwide.
The Open Banking Implementation Entity , brought into being by the Competition and Markets Authority following its investigation into the UK retail banking sector, has accumulated an impressive 700 market participants and exists as a point of envy for other industries. Now though the OBIE is being phased out, and there is no certain future entity with which to replace it. The future of the regulatory regime underpinning UK Open Banking has become less clear.
The CMA notes: “Although the core elements of open banking are now in place… it is not inevitable that it will continue on the same trajectory”. The nature of the entity that follows OBIE matters to other industries and countries – as an exemplar – just as much as it matters for the UK financial services industry itself. There is a great onus on the CMA, the body overseeing the implementation of this new body, to set the space up for future success. Here I share three considerations which should help guide their thinking.
Regulators must grow with Open Banking
Regulatory oversight has played a key role in the development of Open Banking from the very beginning of its existence. Most importantly, the OBIE has ensured that the banks in the UK subject to the CMA Retail Banking Market Investigation Order , the so-called CMA9, have acted in accordance with the interests of Open Banking.
However, the last 18 months have seen profound change within the ecosystem, accelerated by the pandemic. Both the state of consumers’ finances and their spending behaviour have shifted. And, according to OBIE, Open Banking monthly active user numbers have doubled, presumably as people start paying closer attention to their finances. The demand for greater financial transparency and control has never been greater.
This stark rise in demand for Open Banking suggests the needs of the ecosystem could outgrow the original vision of the Order. This poses a potential problem, because regulatory oversight of the OBIE and CMA9 is tied to the monitoring and enforcement of the Order itself. The CMA must therefore ensure that the OBIE’s successor is not separated from their oversight, which is a real threat under UK Finance’s current transitional proposal. The CMA must remain involved to ensure the future entity moves with the same intent as the Order that kickstarted the ecosystem in the first place.
The future entity’s horizons must be wider than Open Banking
Looking more closely into this recent growth of Open Banking participants, a McKinsey report highlighted that one of the largest cohorts of new users is tech-savvy professionals. These consumers are unsurprisingly one of the loudest voices calling for greater financial control and transparency – and this demand does not stop at banking but applies to their entire financial landscape: mortgages, pensions, credit, and more. If consumer interest is truly at the centre of the movement, this wide-ranging application of ‘Open’ principles – in other words, Open Finance – should be the natural destination of the Open Banking journey.
There are many benefits of incorporating Open Finance into the future aims of the new implementation body. Firstly, it would protect and extend the UK’s leadership position in the space . Secondly, it would deliver tangible benefits for consumers. They would be able to engage more meaningfully with their personal financial landscape through a range of secure, trustworthy and user-friendly third parties. That can only be a good thing.
Regulators must listen to the concerns of stakeholders
One of the major centres of support for the expansion of Open Banking into the realm of Open Finance is the UK fintech sector. It’s another example of a space where Britain is leading globally – and the sector knows that that success has been built on providing innovative solutions for consumers and creating modern financial products fit for an increasingly digital-first landscape.
It’s no surprise then that fintech firms recently hit back at proposals for Open Finance to be located within a subordinate ‘Open Futures board’ of the future entity’s structure. UK Finance had proposed this set-up with the intention of avoiding a questionably defined ‘conflict of interest’, but fintech trade body Innovate Finance have called this proposal “too narrow”. They argue that Open Finance should exist as the “overarching aim” of the future entity.
If Open Finance is subordinated, its development out of Open Banking will inevitably be stunted. It will also prevent existing stakeholders, such as the fintech sector, from widening their lens to consider the benefit of consumer welfare more generally.
There’s no doubt that the move from the OBIE to whatever comes next will be a turning point for Open Banking – in the UK and by extension globally. But by being forward focused, ambitious and – so to speak – open, there is the potential to make it a positive move for consumers and industry alike.
