UK open banking startups are in a celebratory mood after the nation’s financial markets regulator changed the 90-day rule, which required users to re-authenticate their permission for sharing financial data every three months.
Users previously had to re-authenticate their permission with every app and provider they shared their financial data with. This had been viewed as particularly cumbersome. Now users will just need to give their permission to share their data once, albeit still every 90 days.
“You could see this as a well timed early Christmas present,” Lily Shaw, investor at OMERS Ventures, tells Verdict. “It’s a change which had been consistently advocated for by many long-standing open banking players.” OMERS Ventures is the venture capital arm of Canadian pension provider OMERS.
Open banking refers to systems enabling users to take control of their financial data and decide who has access to it. If consumers want to share their data with neobanks, insurtech startups or credit companies, the institutions holding that data – such as traditional banks – are legally required to share it.
Open banking has been described as a “game changer” for the banking industry in a thematic research report from GlobalData. It arguably levels the playing field in favour of new startups aiming to compete with incumbent players.
The UK’s open banking rollout dates back to 2015 when the European Union announced the second Payments Services Directive, or “PSD2”. While Blighty has since divorced the trading bloc, the laws regulating these initiatives are still in place in Britain.
These rules are now being updated by the country’s financial markets watchdog. The Financial Conduct Authority (FCA) announced the change on Monday November 29. The changes are the result of a consultation, launched earlier this year, into what’s holding back the payment and electronic money industries. The consultation aimed to remove barriers to growth and to better protect consumers if firms fail.
The FCA announced several changes covering strong customer authentication, risk management and how regulatory developments caused by Brexit will affect open banking startups, payment providers, e-money providers, credit institutions and unions, consumers groups, retailers and similar organisations. The new guidelines will take effect on Saturday March 26, 2022.
The biggest change to the UK open banking industry is the change to the 90-day re-authentication rules.
“It means apps that provide personal finance management and financial advice solutions will no longer require the end user to reconnect every 90 days,” says Jason O’Shaughnessy, head of international business at account aggregation company Envestnet | Yodlee.
Instead, consumers only have to update their permission once every three months with one third-party provider, which usually refers to open banking startups. The third-party provider will then manage the rest.
“Now there will be no need for customers to jump through the credential sharing hoops with each of their connected banks every 90-days,” says Jack Wilson, head of public policy at open-banking unicorn TrueLayer. “Instead, it will be for [account information service providers], such as TrueLayer, to manage the customer’s data sharing, by asking the customer at 90-day intervals whether they wish for data sharing to continue.”
Open banking industry welcome change 90-day rule
The UK open banking industry has unsurprisingly welcomed the FCA’s proposed new guidelines to the 90-day rule with open arms.
“This small change has suddenly made the UK’s open banking infinitely more valuable,” Rolands Mesters, CEO of open-banking startup Nordigen, tells Verdict. “The 90-day rule was a nuisance – it’s the equivalent of being locked out from your phone every 90 days for no reason.”
Shaw believes the change will enable the industry to unlock more use cases for open banking, such as revolving credit. She is, however, disappointed that the FCA didn’t go further and scrap the 90-day rule entirely.
“Arguably the risk comes from not being bold enough, being truly bold would be removing the rule entirely,” she says. “While this is a step in the right direction, ultimately banks will still be relied upon to apply the exemption.”
The FCA noted that four respondents to its consultation had offered similar views.
Jan Van Vonno, director of research at open banking startup Tink, which recently announced it would be acquired by Visa for €1.8bn, tells Verdict the change “will come as a relief” for third-party providers “and their customers.”
“By reducing unnecessary friction, we ensure that both consumers and businesses can enjoy a seamless experience when using innovative fintech apps,” Van Vonno adds. “It also means that TPPs won’t need to re-onboard their entire client base every three months.”
Kat Cloud, UK policy lead at open banking startup Plaid, is equally optimistic and believes the rule change “will turbocharge innovation in our sector and improve consumer outcomes.”
“What might seem like a minute, technical change will have a profound impact on open banking in the UK,” she says. This change will drive a more seamless experience for consumers, improve their ability to control their data and crucially democratise how providers use data on consumers’ behalf.”
Michael Vanaselja, CEO of open banking startup Keebo, tells Verdict: “Ultimately this will create an easier and more streamlined customer experience, making this system easily accessible for more users.”
Rollout of open banking in the UK
The news of the FCA changing the 90-day rule comes as the debate about the success of open banking in the UK has flared up again.
In October, Starling Bank’s CEO Anne Boden told MPs on the Treasury Committee during a hearing that “open banking has not been a success”. She denounced it as clunky, costly and incapable of providing profits to businesses.
Open banking startups soon shot back, saying Boden had failed to understand the impact of open banking and to recognise the millions of transactions already being made thanks to these systems.
In an interview earlier this week, founder and CEO of open banking startup Yapily, Stefano Vaccino, told Verdict he believed Boden didn’t understand how successful the sector had been.
“I think she might be missing the perspective of the ecosystem and how much volume is already going through it,” he said, adding that all new technologies take time to really have an impact.