Two years on, has Open Banking reached its potential?

Open Banking was set up by the Competition and Markets Authority (CMA), on behalf of the UK government, in January 2018. However, its reach goes far beyond the UK—over 87% of countries currently have some type of Open APIs in place, according to the Open Banking Report 2019. 

While it came into effect two years ago, it has affected the financial services industry and consumers alike, shaking up how third parties could access financial data and how banks could share said data. 

On its second anniversary, those affected by Open Banking seem to have a wildly varying opinion on how effective it has been. 

New survey shows potential problems 

The Federation of Small Businesses (FSB) surveyed more than 1,000 of its members, and found that 65% of small firms still wouldn’t consider sharing electronic banking data with financial services providers. 

Additionally, 43% of these firms believe this data sharing model is unsafe, while 37% are merely ‘unsure about the benefits’. The majority of small business owners (85%) who are against sharing their financial data electronically are ‘wary’ about the process. 

The FSB’s national chairman, Mike Cherry, said that two years on from Open Banking’s implementation, few small firms had reaped any benefit from it. 

“We’ve always said that—done right—the benefits of open banking will be huge,” Cherry said. “Giving small businesses the ability to integrate cashflow, invoice, payroll, utilities and tax data in one place means giving them the ability to identify new efficiencies. 

“And by sharing that big picture with trusted experts, gains should be amplified. However, the financial crash casts a long shadow. A lot of small business owners still don’t trust lenders to do the right thing.” 

The achievements of Open Banking 

Despite these concerns, there are numerous financial professionals who view Open Banking as a roaring success. Matt Cockayne, Chief Commercial Officer for connectivity platform Yapily, believes that the achievements made with Open Banking are only the beginning of what’s to come in 2020. 

“2019 saw open banking step out of its infancy and scaled very quickly,” Cockayne explained. “The OBIE (Open Banking Implementation Entity) saw 180 million successful API calls in October, and this figure is growing by 20-30 million each month. 

“2020 will see open banking transitions to mass market and change the way in which people and business pay and operate.” 

In October 2019, the last month with statistics published by Open Banking, the average API availability was 98.48%–up from 96% in June 2018. Additionally, The OBIE has over 135 regulated entities within the Open Banking system, in addition to the 30-plus banks already using the system; both of these numbers are expected to grow in 2020.  

“Open finance in 2020 will see a smoother payments flow and more secure use of data,” Cockayne continued. “Smoother, because open banking will be quicker than two-factor authentication, which is being rolled out this year. 

“And more secure, because retailers and businesses will no longer need to hold card details to take payments, meaning debacles such as the breach of British Airways’ customer card details being stolen will be a thing of the past.” 

Within a corporate setting, Open Banking also provides an opportunity for companies to move to different platforms and explore financing partners, outside of banks. 

In August, Finastra’s Anders Olofsson told The Global Treasurer that Open Banking will standardise banks’ distribution channels, which will in turn make treasury work easier. 

“A treasurer in the future may have more partners for their financing than just the banks,” Olofsson said. “They may go to the operator of a platform, for example. Or, it might be as well that buyer financing is being done on the platform.” 

What’s next for Open Banking? 

While Europe, the UK and Australia lead the way in pioneering Open Banking, there are several countries which have not created any regulations or standards, including the United States and New Zealand. 

On the flip side, countries including Japan, South Korea and Brazil have all begun working on regulations. The Open Banking Report 2019 shows that countries who lag behind on these regulations also risk falling behind in global markets. 

Looking ahead, 2020 should be a period of exponential adaptation and growth within Open Banking. The tail-end of 2019 saw both financial and consumer developments following the 14 September roll-out of new Open Banking and PSD2 legislation, and these changes are set to continue gaining momentum throughout the new year. 

Additionally, infrastructural changes within banks will also help bolster their Open Banking capabilities, allowing consumers to experience a better service.  

“With the growth of PISP (Payments Information Service Providers), payments will likely bypass card networks,” Cockayne said. “This will enable greater flexibility for retailers and service providers to make more money, as card payments usually take a small percentage of any payment made online.” 

As new regulations are put into place and come into effect throughout 2020, treasurers ought to keep an eye on the changes happening within both PSD2 and Open Banking to stay ahead of the game.