The future of open banking in the UK

The Open Banking Strategic Working Group (SWG) has published a final report to the Joint Regulatory Oversight Committee (the Committee) - The Future Development of Open Banking in the UK : Final report for the joint regulatory oversight committee (link ). The report contains an executive summary from which we have summarised the key points.

The SWG’s final report notes that it “provides extensive analysis and will form an important part of the input for the Committee to consider as it develops its recommendations.”?This is certainly true and, moreover, it captures a wide range of views from throughout the ecosystem.?In doing so, the report helps frame important topics relating to the future of open banking.?It makes clear that there are sometimes differing opinions amongst key stakeholders that will need to be navigated in order to achieve future success. The Committee aims to publish its recommendations relating to the vision for open banking, and the design of the Future Entity, in Q1 2023 and the publication is expected to include a roadmap.

The SWG received 189 written submissions from open banking industry stakeholders, end-user representatives and independent subject matter professionals.

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Key takeaways

1. Gaps and perception of gaps

·????????????Evidence received by the SWG suggested there may be a number of gaps between the current and a more optimal future state of the open banking ecosystem. However, the SWG notes that as there is limited consensus on what the future state entails, the gaps and the stakeholders’ perception of them are “often contested, with stakeholders harbouring different views on their relevance or extent.”

·????????Gaps:

·????????Ecosystem reliability – the evidence obtained by the SWG pointed to a possible API availability and performance gap:

·????????Performance of firms’ APIs – whilst some stakeholders felt that “firms’ APIs had been performing well, improved over time and were meeting their obligations, others were frustrated by the inconsistency of API provisioning and argued that further improvement was required to provide a more stable and reliable platform for open banking.”

·????????Variance in conversion rates – the SWG found that further evidence illustrated a significant variance in conversion rates across firms, and across channels (mobile app versus desktop).

·????????Reliability – professional advisers “highlighted the growing criticality of open banking reliability, particularly in the small business market where down-time or non-availability have a particularly damaging impact.”

·????????The magnitude of variance in performance and consistency – “was such that it was reported by some to undermine the reliability of the whole system. Such participants felt that this was another clear indicator that improvement was needed across the ecosystem and that there was an opportunity to “level up” to the performance of the best.”

·????????Availability and quality of the performance data – was reported as “limited and did not cover the whole of the market. Whilst the CMA9 firms submit performance data, this is only a subset of the market. Some TPPs provided data on availability and conversion rates but this had also not been subjected to independent scrutiny.”

·????????Fraud – the SWG found alignment across all stakeholders on the importance of ensuring that consumers and SMEs are appropriately protected from fraud, in particular APP scams, when using open banking payments. However, the report notes that there were differing views on the appropriate response to this challenge.

·????????Impact on the customer experience – the report finds that many TPPs believe that banks’ current counter-APP fraud measures can have a significantly detrimental effect on customer experience which undermines the reliability and viability of many open banking use cases.

·????????The argument for current counter-fraud measures – the SWG note that “some ASPSPs highlight that attempted and successful fraud in open banking channels is higher than other channels, in some cases twice as high, based on their internal data. Therefore, they believe that counter-fraud measures currently in place are necessary and proportionate.”

·????????Enhancements to the existing standards – the report finds that while TPPs, some ASPSPs and professional advisers highlighted several gaps in the UK Open Banking Standard, which prevent open banking from better meeting end user needs, most ASPSPs typically felt that there was a limited case for any mandated enhancements of the standard.

·????????Customer protection and trust – the SWG found that all participants recognised the need to ensure that customers were protected and able to obtain redress if something went wrong, however: Consumer protection regime – the need and design of a customer protection regime for account-to-account payments generated “a very broad range of often contradictory positions across the ecosystem, particularly in terms of the scope and coverage of protections that should be provided”.

·????????Redress and liability – how redress should occur and who should carry liability for it were topics of significant divergence, with, in particular, divergent view on the issue of liability for the different types of consumer protection.

·????????Education and communication – some stakeholders “suggested that education and communication may be one way to resolve the impasse, but others challenged the view that consumers, particularly those in vulnerable circumstances, would be able to discriminate between payment types and understand the implications of the different protections offered.”

·????????Trust – the report finds that trust was a topic which prompted divergent views – “some large ASPSPs suggesting that the current growth of the ecosystem indicating that trust was not a barrier but others called for a range of interventions to enhance trust, including communication, improvements in clarity of language, education or trust marks.”

·????????Extension of open banking:

·????????Providing access to Variable Recurring Payments (VRPs) for non-sweeping use cases – the report notes that although this was referenced in many of the submissions there was divergence in how this service should be brought about and the cost for access.

·????????Data sharing beyond PSD2 - the SWG found this was an area with widespread support.

·????????Sharing identity attributes – the report finds that while this was regarded by some stakeholders as an important development of the market, particularly to widen access and address exclusion, others felt that what was most important was that any initiatives aligned to the UK digital identity and attributes framework, and existing identity initiatives and to not duplicate efforts.

·????????Supporting e-commerce – the SWG found a perception gap in the long-term vision for open banking regarding the need for the expansion of open banking payments to support e-commerce.?The report notes that “some respondents felt that this development was important to provide a viable alternative for card payments, whereas others felt that the issues of customer protection and a viable commercial model need to be addressed before expansion of open banking payments is progressed.”

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·????????Perception of gaps

·????????The SWG concluded that there “is a myriad of plausible explanations why these gaps or perceived gaps exist among open banking ecosystem stakeholders.”?However, from their work they highlighted two of those plausible drivers for the divergent views on gaps: the lack of key empirical data and difference in visions for open banking.

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2. Potential short-term and long-term solutions to bridge gaps

·????????The SWG found that there is still “limited consensus on what solutions should be prioritised, how actions could be sequenced or the mechanism(s) (e.g., regulatory or market-driven) through which a workable agenda can be delivered.”?Additionally, there are also “widely divergent views on the structure and funding of Future Entity or entities, underpinned by stakeholders’ different visions and varying degree of ambition.”?

·????????However, the SWG found that “at least in the short to medium term, there seems to be some areas of alignment and potential workable solutions to move forward.” These areas are as follows:

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·????????Unlock the potential of open banking payments – the report notes that while there was a wide range of views on how to unlock the potential of open banking payments, the evidence identified three broad thematic priorities:

·????????Balancing fraud and friction

·????????Improving ecosystem performance

·????????Expansion of Variable Recurring Payments (VRPs) beyond sweeping

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·????????Promoting further data sharing – the report notes that:

·????????Although there were “varying views on how this should be achieved, most respondents agreed that data sharing forms a necessary part of the future of open banking as a way to deliver consumer protection, innovation and competition.” ?

·????????Two broad thematic priorities were identified from the evidence:

·????????Additional data sets – there was “widespread support for an expansion of open banking towards open finance, including not only adjacent products such as savings and loans but also investments and pensions” and also “support for opening up access to non-open finance data sets such as identity attributes.”

·????????Data sharing infrastructure – evidence was “provided by many TPP and independent respondents, that there is a need to get the basics of open banking data sharing right by delivering higher standards of reliability and customer experience, providing users with appropriate tools to understand and control their data sharing, and ensuring that open banking delivers for all sectors of society including vulnerable customers”.

·????????Possible actions and prioritisation – the report finds that there is “substantial alignment around the potential for using enhanced data sharing to help reduce fraud and the benefits of “levelling up” the performance of all ASPSPs to the standards of the CMA9, and some alignment on the need to examine ways to improve consumer transparency and control.”?However, there is “significant divergence regarding the sharing of potential additional data sets…” The report also notes that “ Views also diverged regarding the current level of ecosystem reliability and, as a result, a lack of consensus on actions that could be taken to improve matters.”

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·????????Ensuring a sustainable open banking ecosystem - the report notes that:

·????????Clarity of vision and Ambition to Act

·????????Many stakeholders “felt that it was difficult to determine what the roadmap might be without clarity on the vision for open banking, with a number seeking more guidance from regulators about their vision and the outcomes that they wanted to achieve”.

·????????“It was clear from responses that there were differences amongst participants’ ambition for the development of the open banking ecosystem.”?

·????????Maintaining the UK’s international standing as a leader in open banking and a global hub for fintech was also mentioned in responses many times.

·????????Ecosystem-wide priorities

·????????“Whilst there was alignment regarding the need for a more proactive approach in developing the ecosystem, not all participants were aligned on which specific activities should be prioritised or the most appropriate way to achieve desired outcomes.”

·????????The report therefore sets out priorities “based on areas which had broad based but not unanimous support”: namely

·????????Conformance and performance

·????????Trust and awareness

·????????End user outcomes

·????????Evolving the standard

·????????Long-term alignment to broader initiatives

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·????????Future industry structure – the report notes that:

·????????“A broad range of views were submitted regarding the future structure of the ecosystem to support the successful development of open banking. There was a general view that some form of successor entity (or entities) to the current the OBIE would be required, although there was limited agreement on the nature, scope or authority of that entity (or entities).

·????????“…there was, however, a strong preference from many stakeholders that the Future Entity (or entities) should assume the role of a central standard setting body to develop and maintain future Open Banking Standards, with respondents seeing a potential role of the Future Entity as a standards centre of excellence with a broader remit than open banking, thereby supporting the development of long-term open finance and Smart Data capabilities and digital financial infrastructure for the UK economy.

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The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.