Recommendations published by The Coalition for a Digital Economy (Coadec) advise the UK Government and regulators to take a new approach to Open Finance. Founded by tech entrepreneurs Jeff Lynn and Mike Butcher, Coadec is a non-profit organisation that conducts research, hosts events and works with digital startups and policymakers to create better policy for the digital economy.
The report comes as the Government and regulators embark upon a number of ambitious reviews in 2020 including modernising payments regulations, open finance and the broader UK fintech strategy.
The research commissioned by Plaid, an Open Finance data network powering thousands of digital financial apps and services, provides a blueprint for getting Open Finance operational within 2 years.
Coadec has launched a new paper arguing for more of an Australia-style, market-led, approach to Open Finance, and calling for regulators to end their overly-standardised approach. The paper, ‘Breaking Banks: A blueprint for Open Finance that puts customers first’ highlights how Open Finance can help shape the way millions of UK consumers engage with their finances, provide better and more tailored financial deals, and promote financial inclusion. In addition, the paper calls for the introduction of a far-reaching consumer data right that empowers consumers to share their financial data with third party apps. This comes at a time when banks are seeking to charge third parties to access this data – via so-called “Premium APIs”.
Open Banking is far from perfect. With a little over two million registered customers to date, it is a long way off reaching critical mass. Rectifying previous mistakes such as overly-prescriptive technical standards, and anti-competitive security measures will be key to future success. These errors have played a significant part in thwarting Open Banking’s potential to add $1.4 billion to the UK’s GDP on an annual basis, according to analysis from the Centre for Economics & Business Research.
The UK can achieve an open digital financial services marketplace within two years with the establishment of a consumer data right, and with the help of API platforms, like Plaid, building the connections needed for Open Finance in tandem. The Australian Government took this approach and introduced arguably the most expansive open data regulatory initiative in the world. The Australian Consumer Data Right (CDR) will give consumers the right to access not just their financial data but also utility and telecom data by 2021, even though it was only introduced in 2017.
The UK’s current, highly standardised, Open Banking regime started in 2015 yet some key aspects are still being finalised. The EU has committed to having an Open Finance framework in place by 2024 and so the Government must move quickly to defend the UK’s fintech crown.
‘Breaking Banks’ outlines a four-point action plan for the Government and regulators that: empowers consumers to own their financial data and determine who they share it with; ensures the payments landscape is completed; provides the necessary incentive structures to unlock both Open Finance and a broader open data ecosystem; and, proposes a market-led, principles-based regulatory framework that will allow the UK to deliver open finance much quicker than the EU.
Recommendations:The Government must grant consumers a new data sharing right that empowers them to own and share their financial data once again. Banks are seeking to entrench their dominance once again by levelling charges on third party startups for accessing financial data – via so-called “Premium APIs”. The Government must remove the 90-day re-authentication rule. It is an unnecessary barrier that is preventing consumers from accessing better financial services. This has forced startups to endure customer attrition rates between 13% and 65% according to industry data, which are not viable for any business at either end of the spectrum. The FCA must pursue a market-led, principles-based regulatory framework for Open Finance. Open finance will encompass disparate and diverse sectors which will be extremely difficult to coalesce around a particular technology and governance standard like in open banking. The quick-wins for Open Finance will be in the savings, credit, mortgages and pensions markets, and the FCA must make these the first sectors to open up their data first to consumers via open source APIs.
Commenting on the report, Joel Gladwin Head of Policy at Coadec, said: “What Open Banking has shown that when the consumer is in control of their data and who they share it with, this can build trust, drive engagement and empower activity. By granting consumers a new data sharing right, and encouraging a market of API specialists to compete, banks will have very little room for maneuver this time. Ultimately, this will allow consumers to access better, and more tailored, financial services than they do currently.”
John Pitts, Global Head of Public Policy at Plaid said: “Open Banking paved the way for consumers to take control of their finances, but it didn’t go far enough. Open Finance is the next step; it will open up more sectors for innovation and, ultimately, bring consumers more choice, convenience, and ease when it comes to managing their finances. With or without industry standard APIs, competition will allow firms that specialise in API development and integrations to build the infrastructure needed to make open finance a success.”
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