To the average British person, the advent of Open Banking would mean very little. In fact, three in four are said to not even know what it is, even though it is almost two years old. However, more avid followers may be asking themselves what has been achieved since it came onto the scene.
The initial statistics do not paint a great picture.
Of the 442 banks that had to implement facilities for third parties to test their functionality in a sandbox by 14 March 2019, only 59% have complied.
As the next deadline of 14 September looms, when banks will need to have fully compliant dedicated application programming interfaces (APIs) for third-party providers (TPPs) in place, there is a growing concern about the number that will apply for exemptions and therefore delay the implementation of Open Banking.
What does success look like?
However, at this stage, such statistics are not necessarily the best metric for measuring success.
Indeed, Open Banking is a process and, right now, we are in the implementation stage, and the deadlines put in place are ambitious, but the most important aspect currently is how we are layering up.
The questions that should be asked are: is there consumer appetite; are banks ready for Open Banking; and are TPPs registering?
From the consumer perspective, whether they know what Open Banking is or how it works is almost irrelevant: they need to be interested in the products that Open Banking can offer and, since there were over two million users of account aggregators before Open Banking, it can safely be assumed that there will be a demand.
When it comes to banks, according to the Open Banking Implementation Entity (OBIE), which was created in 2016, in addition to the nine mandated banks (the CMA9) 40 further banks are using the Open Banking standards.
As for TPPs, according to the Financial Conduct Authority, more than 100 have registered so far.
All of this takes time and happens behind the scenes – it takes time for banks to be able to build trusted and reliable APIs, and it takes time for TPPs to build products and get authorised. Building trust
This layering is vital for the future of Open Banking: it forms its foundations.
The big bang of implementation that many thought would have occurred by now is instead a steady incline, and this is important.
Serious questions need to be bottomed out, such as what is a payment account, what is in scope, when can a bank restrict access.
Setting the rules to the game before opening up the data is also imperative.
The biggest threat to Open Banking at present is a lack of trust and this is something that is earned slowly.
Before consumers will feel comfortable with TPPs being able to handle their data, they need to be assured that the necessary protections are in place and be made aware of the benefits of this.
Data breaches will undermine the whole project.
Slowly but surely
If the cost of slower implementation is negative articles and questions being raised about whether the project is a failure, the OBIE can be satisfied with the approach taken.
Frankly, the benefits of Open Banking will soon be felt across the financial ecosystem.
Looking into the medium term, there will be better quality products; increased choice for consumers; and enhanced security.
Open Banking will allow consumers and SMEs to take control of their data and restate their relationship with banks.
Consumers are already starting to see the financial inclusion element of this come to fruition.
People who through traditional methods would have fallen out of the underwriting process are now being brought back into the system through products offered by TPPs.
As Open Banking grows into open finance more generally, it is just the imagination that limits the possibilities of products that can be created.
Right now it all seems painfully slow, but this is the end of the beginning.
The future does look bright - it will just take time.
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