Open Banking and Open Finance and in the UK - a voyage of discovery.

In our latest edition, Julian Wells, Whitecap FinTech Lead, provides an overview of the ongoing evolution of Open Banking and Open Finance in the UK, and reflects on Whitecap's long-standing partnership with OBE.

It is now more than 6 years since the introduction of Open Banking, although the much hyped run up to its launch means that this has been a hot topic in the UK for considerably longer. Since 2018, the financial services industry has undergone a profound transformation driven by the principles of Open Banking and Open Finance. These government-mandated initiatives are not only reshaping how consumers and businesses interact with financial products and services but are also fostering innovation and competition within the sector.

2024 also marks 6 years since the inaugural Open Banking Expo (OBE) conference, and Whitecap is proud to continue its partnership with the OBE team in the run up to this year's London conference.

Understanding Open Banking and Open Finance

For those not familiar with Open Banking, it was introduced in the UK in 2018, mandated by the Competition and Markets Authority (CMA) . It requires banks to open up their data to third-party providers (TPPs) via secure APIs (Application Programming Interfaces). This initiative enables consumers and businesses to share their financial information securely with other authorised providers, facilitating easier switching of financial services and more personalised offerings.

Open Banking was recently featured on BBC’s Morning Live with financial journalist Iona Bain. Watch the clip (above) ?BBC

Open Finance, on the other hand, expands on the principles of Open Banking. It encompasses a broader range of financial products beyond traditional banking services, such as insurance, investments, pensions, and more. The goal is to create a holistic financial ecosystem where consumers have greater control over their financial data and can access a wider range of products and services from multiple providers through interconnected platforms.

The UK has been at the forefront of regulatory developments in Open Banking and Open Finance. Regulatory bodies like the Financial Conduct Authority (FCA ) have played a crucial role in overseeing the implementation of these initiatives, ensuring data security, consumer protection, and fair competition among financial service providers.

Impact on Consumers and Small Businesses

For Consumers: Open Banking and Open Finance empower consumers by offering more personalised financial products tailored to their specific needs and financial behaviours. For example, individuals can use third-party apps to aggregate their financial information from various accounts, analyse spending patterns, and receive recommendations for better financial management.

Consumer adoption of open banking continues at pace, with over 1 in 9 (11%) British consumers becoming active users, up from around 7% in December 2021.

For Small Businesses: Open Finance presents significant opportunities for small businesses, particularly in addressing five of their biggest challenges: cashflow, finance, late payments, winning new customers, and financial business administration.

A 2023 report published by Whitecap Consulting, supported by?Intuit , the global financial technology platform and owner of?QuickBooks , analyses the potential future impact of smart data via the development of Open Finance.

The research conducted for the report included interviews with 35 industry experts and small businesses, and concludes that Open Finance could deliver considerably enhanced benefits to small businesses than they currently experience from Open Banking.

Fundamental to the success of Open Banking and Open Finance is the ability to share data, and this capability is increasingly referred to under the broader banner of Smart Data. For SMEs, the potential for Smart Data to help the performance of their businesses is increasingly hot topic. Open Banking was the secretariat on the recent SME Finance Taskforce report , published in August 2024, which had the full title of 'SME Finance Taskforce - Smart Data: improving SME lending to drive economic growth'. The Taskforce was chaired by Charlotte Crosswell OBE , Chair of the Centre for Finance, Innovation & Technology (CFIT), who previously led Open Banking.

In many ways, we are still in the foothills in terms of the potential for Open Banking to positively impact SMEs. The Open Banking Impact Report ?from March 2023 on UK usage shows that small businesses had adopted open banking at a rate of 16%, compared to consumers who adopted it at about 10%. When Open Banking published a further report in October 2023, these figures rose slightly to 17% and 11% respectively. However, when looking at growth year on year (June 2023 vs June 2022), the growth was 21% for consumers and 11% for businesses, which makes for considerably more encouraging reading.

Challenges and Future Outlook

While Open Banking and Open Finance are driving innovation in the sector, they also come with challenges. Key challenges include data privacy concerns, ensuring interoperability among different financial platforms, and addressing the technological complexities of API integrations.

Garri Galanter, CEO at Salt Edge?wrote for Forbes addressing two Open Banking topics, myths and market acceptance, to provide a better understanding of their correlation. He highlighted the need for greater education to ensure security.

"An educated user base is crucial for maintaining a secure environment. I believe that the combination of open banking technology built according to strict requirements, a clear vision of how all the involved parties can benefit from open banking and efforts to inform the market will aid the adoption of open banking."

Looking ahead, the future of Open Finance in the UK has huge potential, which can be unlocked by a combination of policy, regulation, technology, Smart Data, and enhanced adoption by consumers and businesses alike. As technology continues to advance and consumer expectations evolve, we can expect to see further integration of financial services, enhanced data analytics capabilities, and the emergence of new business models that leverage Open Finance to drive innovation and customer-centricity.

Upcoming event: Open Banking Expo UK & Europe

• 15-16 October 2024
• Business Design Centre, London
• Register here

Join industry leaders, innovators, and policymakers at the Open Banking Expo UK, a premier event focused on the latest trends, challenges, and opportunities in Open Banking and Open Finance. Gain insights from keynote speakers, participate in panel discussions, and network with peers to explore how these initiatives are shaping the future of financial services in the UK and beyond.

Further reading

The Open Banking website is a fantastic source of insight, news and data for anyone wishing to read up further on this topic: