As RBI goes to print, Open Banking in the UK celebrates its first birthday on 13 January.
Before looking forward, let us look back very briefly to the launch of Open Banking. There was a lot of hype surrounding the launch, and many industry observers who ought to know better spoke a lot of nonsense about how quickly Open Banking would transform the industry.
It was, we were told, a game-changer. Open Banking would disrupt the incumbents. It would help to accelerate switching rates. There would be innovation on a scale not previously witnessed. The end result would be considerable benefits to consumers, who would gladly share their personal data with third parties.
Many evangelists went even further and claimed that Open Banking represented a new revenue-generating opportunity for the incumbents. The Open Banking revolution would be such a success in the UK that markets outside Europe would be keen to accelerate their plans for similar plans.
We heard similar arguments and ridiculously optimistic forecasts around the time the UK rolled out seven-day switching. The ludicrous claims by some that seven-day switching would bring about 6% or even 10% switching rates were always a nonsense – and that is borne out by the figures: as previously noted in RBI, switching rates remain stuck at around 2% per year.
Open Banking supporters’ ambitions were undoubtedly ambitious, but it is not objectionable to promote innovation, encourage customer choice or empower customers. The fact that it is an opt-in system, and the safeguarding of data is at the heart of the system, is to be applauded. It is also unarguable that for certain types of transaction, such as international payments and travel, the likes of Transferwise and Revolut are helping to lower costs for a growing number of customers.
Nationwide – Open Banking for Good
There are also examples of how Open Banking may boost financial inclusion. Nationwide’s Open Banking for Good initiative, focusing on boosting products that encourage financial inclusion, is deservedly attractive favourable comment.
However, the claims that disruptors help to boost competition and lower costs do not apply across the entire sector. Take Viola Black as just one such example. A new player on the scene has kicked off the New Year with a mega ad campaign across London’s public transport system. If ever there was a case of what is essentially a prepaid card product offering more hype than substance, this is it. And if it persists with its expensive fee structure, it is hard to see it gaining significant customer numbers.
Far from viewing Open Banking as a new revenue opportunity, the impression given by many incumbents is that this is more of a regulatory-compliance requirement. Off-therecord comments from senior UK bankers suggest that many have only developed a limited Open Banking strategy to date – and privately, many admit that they are not satisfied with their progress.
A degree of rational, calm, realistic reflection is more appropriate at this stage, rather than the hype of the evangelists or the negativity of those eager to write off Open Banking prematurely. Data-breach embarrassments such as the Cambridge Analytica scandal do little to encourage a sceptical public to share data. Data sharing is, after all, core to the potential success of Open Banking.
It would, however, be wrong to argue that such scandals mean Open Banking is doomed to fail to catch on. Nor do I accept the argument, advanced by some, that the requirements of the Strong Customer Authentication initiative have the potential to make the consumer experience worse, and in turn kill off Open Banking’s prospects.
Yolt – one of many early successes
It was always going to be a slow – or slowish – process, and talk of quick, seismic and transformational changes was always unrealistic. Equally unrealistic are those forecasting now that 2019 will be the year that Open Banking really takes off, whatever that means. It was always going to take time. The established banks are still working out where to develop inhouse or work with external consultancies and tech providers.
But on a positive note, account-aggregation services are now readily available – and for free – on the app stores. To give one example, Yolt – the first TTP to connect to all CMA9 banks using the Open Banking APIs in September 2018 – surpassed 0.5 million registered users last year.
As the Open Banking Implementation Entity reports, there are now 100 regulated providers, of which 17 Third Party Providers are now using Open Banking in the UK. Open Banking technology was reportedly used 17.5 million times in November last year, up from 13.9 million in October and 6.5 million in September.
There was never going to be a killer app in the first year. In brief: give it time, but for Lord’s sake, cut down on the hype.