This week sees the launch of Stage 1 of the Open Banking initiative. In response to the Competition and Markets Authority’s (CMA) retail banking investigation, Open Banking aims to take advantage of the continuing developments in technology (and FinTech in particular) to give customers more choice on how they manage their money and finances. It will enable customers to share their data securely with third parties, compare products on the basis of their own requirements and manage their accounts without having to use their bank.
Whilst regulatory driven, smart financial services organisations will see Open Banking as an opportunity to differentiate themselves in the market and provide new and improved services to customers.
A new organisation has been created to implement and deliver Open Banking. It is currently working with the nine banks mandated by the CMA including Barclays, HSBC, Lloyds Banking Group and RBS Group, as well as fintechs and Consumer Groups. Open Banking is being delivered in three distinct stages. Stage 1 of Open Banking was delivered earlier this week. The focus of stage 1 is on open data – making general information readily available to customers, such as the location of ATMs and branches and the specification for different Personal Current Accounts and Business Current Accounts. Data from a number of banks will be available immediately on their websites, with the remainder following later this month. All nine banks mandated by the CMA are expected to complete the process by the end of March.
Stage 2 of Open Banking is set to be implemented by January 2018. Stage 2 will see the banks release APIs (application program interfaces) that enable third parties, with the customers’ permission, to read the transaction history of Personal and Business Current Accounts and initiate payments from those accounts. Stage 2 is aligned to the upcoming European Payment Services Directive 2 (PSD2) which also enables customers to use third party providers to manage their finances. It will be interesting to observe the inter-relationship between the CMA Order and the imminent PSD2.
Stage 3 of Open Banking is to be implemented by Q3 2018 and relates to the service quality metrics and development of the APIs as commercial products. Due to the complexity of this stage, banks may be required to collaborate with technology and fintech companies.
Open Banking has brought technology to the forefront of financial services. This technology-driven plan to increase competition within the financial services sector highlights the potential of innovative fintech companies, technologies and applications to transform the way we engage with, and consume, banking services.