On July 16, 2019, the UK Open Banking Implementation Entity (OBIE) released a report titled, “Open Banking: Preparing for Lift Off” (the OBIE Report), which covers current progress, future potential and challenges for Open Banking. The initial phase of the Open Banking implementation in the UK is scheduled to be completed in September 2019. Further adjustments may follow this milestone.
The OBIE Report is a significant update because the UK has been seen as a global leader in Open Banking. While it is still early to draw conclusions, the OBIE Report’s recommendations are relevant to other jurisdictions implementing their own versions of Open Banking who may want to learn from the UK’s experience.
What is OBIE?
OBIE was set up by an order from the UK Competition & Markets Authority (CMA) in September 2016 to address the challenge of insufficient competition in retail banking and drive future innovation in financial services. OBIE’s role is to develop standards for Application Programming Interfaces (APIs), data structures and security architectures necessary for Open Banking. While OBIE is a private organization, the CMA has required it be funded by the nine largest UK Banks (the CMA9) and overseen by the CMA, the Financial Conduct Authority (FCA) and the Treasury. OBIE has issued Guidelines for Open Data Participants which cover best practices for security, requirements for Open Banking participation, management of personal data, and records retention. (see our blog post here)
What has been accomplished so far?
Initially, OBIE deliberately took a minimum viable product approach to the rollout of Open Banking APIs, where the OBIE released the APIs as early as possible so that learnings from user feedback could be incorporated. Since receiving early feedback on the Open Banking APIs that the user experience was “lengthy and cumbersome”, OBIE has been able to respond expeditiously by revising the Open Banking standards to provide a more consumer-centric comprehensive user experience. According to the OBIE Report, user conversion rates for Open Banking entities have doubled since the rollout of the revised standards.
Since the launch of Open Banking in the UK, more than 135 entities have been approved by the FCA to offer Open Banking services. Use cases for account aggregation services, personal financial managers and small business financial management are currently live. Other exciting applications for consumer lending, credit enhancement, e-commerce, identity verification, and product comparison are in design and testing.
The UK Open Banking universe overseen by OBIE overlaps imperfectly with the regulatory landscape created by the EU’s Revised Payments Services Directive (PSD2). The main theme of the OBIE report’s recommendations is that this is a potential challenge for Open Banking going forward. Some key priorities and recommendations for Open Banking identified within the report include improving payments capabilities and refund functionality, the development of Premium APIs and improving consent protections for consumers.
- Improving Payments Capabilities – Some Third Party Providers (TPPs) indicated that the initial Open Banking payment APIs lacked functionalities such as the possibility of refunds and the ability for customers to pre-approve payments for subscription services. The OBIE report recommends exploring “variable recurring payments” for convenience and security going forward.
- Improving Consent Protections – The OBIE Report suggests codifying a consumer’s consent and attaching it to the underlying data so that data processors, auditors, and regulators, can trace the scope of the consent and how customer data is to be used. Further, data for users who revoke their consent should be deleted automatically.
- TPP Reauthentication – Rather than customers having to revisit their bank’s app to reauthenticate every 90 days for ongoing relationships with TPPs, the OBIE Report recommends allowing customers to reauthenticate with TPPs directly in order to ensure continuity of service.
- Premium APIs – OBIE is planning to create Premium APIs that sit above the mandatory Regulatory APIs. Premium APIs can be provided voluntarily by banks for contractual remuneration from TPPs. One potential benefit of this approach is the creation of commercial incentives for banks to provide API access.
- Expanding Open Banking into Open Finance – Currently PSD2 and the CMA Open Banking Order are limited to current accounts and payments accounts. The OBIE report recommends expanding to other financial products including savings accounts, pensions, mortgages, and insurance. The FCA is already taking action by creating an Open Finance project team.
What does this mean for Canada?
Canada is in an ongoing consultation process related to Open Banking (see our blog post). This has involved both a consultation paper from the Department of Finance as well as a report from the Standing Senate Committee on Banking, Trade and Commerce (see our blog post on the Senate Report). Canadian stakeholders may thus find the UK developments of interest.