BankingOpen BankingOpen banking model faces “trust and adoption” concerns

Open banking model faces “trust and adoption” concerns

A proposed open banking model has been met with scepticism ahead of the Roadmap’s expected 2021 end date

A ‘future model’ of open banking in the UK which outlines Open Banking Limited’s (OBL) role, commercial model, and role in the industry ecosystem, has met mixed responses.

“I think we have to put this report, as it is, in the bin,” says Samantha Seaton, CEO of financial application Moneyhub. “I think we’ve got to start again.”

OBL’s role is to ensure all API standards are developed and delivered properly, and to work alongside regulators and the wider industry to support the growth of UK-based financial services.

The report – published by UK Finance and Accenture – argues that rather than be a “passive service supplier,” OBL should use its resources to support open finance standards, so long as it does not influence the market.

“We need it to be data-driven, and I think they’re thinking too financial services-driven,” Seaton says.

To maintain standards, OBL—as a non-regulated, fee-funded entity—would have a board of directors, comprised of industry participants and an independent chair holding the company to account.

However, with the Open Banking Roadmap approaching its 2021 finish line, some market participants have criticised the report’s involvement of stakeholders and lack of full transparency.

“So what I don’t want to do with what’s been said in this report, is go backwards—we’ve done all of that, so can we really harness that and take another step forward?”

According to Ed Glass, principal in the fintech practice at Odgers Berndtson, that will depend on both the ecosystem and the regulator’s full cooperation.

“We are only in year two of Open Banking and while it can be said that adoption has been underwhelming, some aspects are complex technologically and conceptually, particularly for SMEs,” Glass said via email. “I believe that this year, we will see a big acceleration in terms of agreed standards, and more successful case studies.”

Glass added that while he feels the report has merit, the overall impact of open banking on SMEs and their liquidity cannot be overlooked as the Roadmap progresses.

“The problem so far though has been one of trust and adoption,” Glass said. “The Accenture model looks good as a theory, but SMEs need to trust that the system will work.”

He added that the community needs to work closely to battle open banking scepticism, ensuring international collaboration from the big banks—and ensuring cooperation from the Competition and Markets Authority (CMA) 9.

Since the 2016 launch of Open Banking, the CMA9—AIB Group (UK), Bank of Ireland (UK), Barclays Bank, HSBC Group, Lloyds Banking Group, Santander (UK), Northern Bank, The Royal Bank of Scotland Group, and Nationwide Building Society—have helped create nearly £1.5bn in infrastructural investments.

“We haven’t really had a truly independent organisation driving open banking—we’ve had an Open Banking Implementation Entity (OBIE), which was paid for by the banks, under the law,” Seaton says. “It’s quite a different proposition to be mandated, to be forced to do something.”

As outlined in the “Future State” report, the CMA9’s ongoing compliance would be reviewed separately from industry-required governance and functional maintenance.

The development of services and standards would be assisted by customer and membership groups and schemes, to “ensure the standards continue to align to, and support regulatory requirements,” per the report.

During a webinar at Open Banking World Congress 2020, Bill Roberts, head of open banking at the CMA, confirmed the initial difficulties they faced with the banks.

“A mandatory approach was the only one that, certainly in the short term, would have had any result at all,” Roberts said. “If it was left on a voluntary basis, we’re pretty sure the banks wouldn’t have done it—or if they had done it, it would have taken a very long time for it to happen.”

Looking towards the future, an OBIE spokesperson said that they have worked with CMA to allow for a flexible Roadmap, taking into consideration any pandemic-driven delays.

“Our key area of focus is to get this delivered and we recognise that once all of that is complete, there is an absolute need to work out how Open Banking is correctly structured beyond the implementation itself,” the spokesperson said. “This is particularly key for the evolution of Open Finance.”

A CMA spokesperson said that the report offers “some positive recommendations” for the delivery of open banking, adding: “Key to the CMA’s decision making on next steps will be the need for open banking to continue ensuring people and small businesses get better banking deals.”

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