How has open banking changed financial services in the UK?

Launched in January 2018, open banking was designed to change forever how financial institutions control and use our financial data. 

Designed to put consumers and SMEs in control of their finances, open banking has been heralded as a game-changer, allowing Fintech and startups to innovate in financial services and provide a range of services designed to precisely meet consumers’ needs.

In 2017, 92% of consumers had never heard of open banking. A year later, only 9% were using open banking apps. Yet with 63% of smartphone users downloading at least one financial app, there seems a clear case for higher levels of data sharing. However, concerns around data security have led to slow user uptake.

The current landscape

According to the Open Banking Implementation Entity (OBIE), use of the technology steadily increased after launch to 3 million users in July 2018. Fintech is disrupting the natural order, and banks are responding with a range of user-friendly apps such as HSBC’s Connected Money. 

There’s a renewed interest in the payment space, with challenger banks thriving where banking and technology meet. For a traditionally conservative industry that is slow to change, the pace of growth has been explosive.

However, the level of adoption remains low. Banks have tended to regard open banking as both an innovation play and a compliance exercise where valuable data is shared without expecting something in return.

However, more proactive banks realise the opportunities for partnerships with other providers. In this model, the third party providers innovate and bring products to the market faster, supported by the banks, which, in turn, develop new revenue streams.

The impact of open banking

Open banking has opened new demographics and enabled banks to cater to previously underserved segments. For SMEs, the opportunity to access real-time data is transformational, streamlining payment processes and credit arrangements. 

Where SMEs have traditionally relied upon the services of accountants, open banking puts money management firmly into a business’ own hands. A range of apps from PFM to account aggregation have created opportunities for seamless cash flow management. 

For consumers, the opportunity to take a holistic view of financial behaviour delivers greater control over money management. With more power to switch between tailor-made financial apps, banks are facing serious competition in the financial space for the first time, benefiting all users with a range of innovative products that offer true ease of use.

The open banking ecosystem

There are currently over 135 FCA registered users of the open banking platform. Through the flawless implementation of the open banking standards by the OBIE, the ecosystem now supports a thriving range of Fintech companies alongside the 9 big banks and building societies functioning in symbiotic relationships that deliver greater choice for the consumer.

Financial clarity and transparent products empower customers, and innovation is focused firmly upon their needs. While startups provide agility and innovation, more experienced players lend legitimacy. Banks can explore ways to transfer their expertise in data security payment technology to bring new consumers on board.

Room for improvement

The real impact of open banking may not yet have been felt, but vulnerabilities in functionality are already being identified.

There are four critical areas for improvement:

Open banking may only realise its full potential when it begins to push functionality beyond the limitations of PSD2 and into areas of customer-centred innovation. 

Open banking’s impact will increase as the most valuable use cases with the most obvious long term benefits enter the market. 

What lies ahead for open banking?

Open banking’s impact on financial services is likely to be a quiet revolution rather than a big bang. Consumers and SMEs are already benefiting and will continue to do so as open banking comes onstream across the globe. 

As the first adopters, UK banks have the opportunity to innovate fast to enhance the consumer experience and keep pace with needs and demands. Cultural changes are still required, however: 

Fintechs are already delivering great value propositions and challenging the establishment, and this could be only the beginning. With a raft of non-financial companies set to enter the open banking space, the opportunities for innovation and frictionless financial management are seemingly limitless.

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