Open Banking two years on
The 13th January 2020 marked two years to the day since the introduction of the Open Banking initiative in the UK, so what progress have we seen?
If you’re a bank customer, the impact of Open Banking has been fairly muted, with minimal changes in the products and services offered. For providers on the other hand, it has been two relatively painful years.
The CMA9 have struggled to meet deadlines, targets for uptime and successful APIs calls, and, unsurprisingly given those stumbles, to do any serious innovation using the Open Banking mandated APIs.
Fintechs meanwhile, many of which built business cases around being able to access Open Banking APIs and the data and systems they unlock, have become frustrated with the lack of progress from the banks, which is in turn limiting their own ability to capitalise on the initiative.
That said, it’s not all bad news. Some of the infrastructure players, also known as technical service providers (TSPs), which offer services to both the third party providers and the account providers have been doing rather well.
Many in this category are aggregation platforms such as TrueLayer and Salt Edge, which collate multiple account providers’ APIs and make them available to other account providers and registered third parties (typically fintechs such as Plum and Emma). That makes it easier for those looking to build Open Banking API-powered services to do so, because they only have to connect once to access data and systems rather than connecting to each provider individually.
While the end product the customer receives hasn’t been altered by Open Banking, the method by which they acquire it has...
Some TSPs offer additional services to clients such as helping providers build their own APIs, white-labelled personal financial management tools and identity and credit checking functionality.
Aside from account aggregation, utilisation of these complementary services by providers is perhaps the most visible sign of the impact of Open Banking on customer-facing services so far.
Experian, best known for being a credit bureau, has an Open Data Platform which providers are using to speed up decisions on credit applications across products including loans and mortgages. TrueLayer meanwhile offers an “income verification” tool that does much the same thing.
Both companies aim to speed up affordability checks by connecting to the applicants’ accounts and ingesting data from which credit providers can make decisions — all in seconds. The process should be easier than the applicant having to upload financial history such as bank statements, and quicker than historic methods of assessing creditworthiness. While the end product the customer receives hasn’t been altered by Open Banking, the method by which they acquire it has, which is a step in the right direction.
As evidence of such companies’ success, you can look to TrueLayer, which agreed a strategic and commercial relationship with Visa late last year. Visa also became a minority stakeholder in the firm, which claims it handles 65% of Open Banking traffic in the UK.
Some third parties are using Open Banking as a way to help those who have been underserved...
For further proof, take the fact that US-headquartered API platform Plaid, which also connects third parties to banks’ infrastructure, recently expanded into Europe including the UK, and was acquired by Visa for around $5 billion shortly thereafter.
Visa clearly sees potential in open API infrastructures, and given its brand and resources, that should have two positive outcomes: 1) Visa’s clients i.e. banks will accept they need help when it comes to becoming part of an open API ecosystem and in turn 2) the hoped for improvements in products and services for end customers will happen at an increased pace.
Areas to watch
When it comes to customer-facing propositions, banks have struggled, as mentioned, but there has also been a shift in the types of offering coming from third party providers that make more interesting and innovative uses of customer data.
The aggregation-based propositions layered with basic analytics, of which we saw so many at the initial launch of Open Banking, are starting to evolve to serve more specific customer needs.
Some third parties are using Open Banking as a way to help those who have been underserved or poorly treated by the incumbent banks. Toucan, for example, is focused on helping those with poor mental health better manage their money by building features on top of the basic aggregation proposition such as the ability to send a notification to trusted person if daily spending falls outside of normal patterns. Tully meanwhile looks to offer personalised debt solutions to customers struggling with problem debt. And Kalgera’s proposition enables users to keep an eye on vulnerable friends or relatives, helping safeguard them from fraudulent activity, by sending both parties any bank alerts.
Credit scoring building
Credit scoring was one of the first use-cases for Open Banking to be implemented, as seen by the early launch of Experian and TrueLayer’s products. We are now starting to see startups taking up the baton as well, with providers such as Mojo Mortgages combining Open Banking data with more widely used scoring methods to more accurately assess what a customer can afford.
...We are just starting to see payment initiation APIs being used to move money between a customer’s accounts.
Additionally, credit building is increasingly coming to the fore. Canopy is one of several firms looking to ensure user’s rent payments count towards improving their credit score, a metric that has previously been excluded by most large credit bureaus.
Helping people put more money away is another area that fintechs have been using Open Banking to aid with since its introduction. While many use the account information APIs to inform their assessments of how much a user can afford to save, we are just starting to see payment initiation APIs being used to move money between a customer’s accounts. Yolt, one of the earliest and most effective third party providers in the Open Banking space, has a service called Yolt Pay in beta which does just that. Giving customers the ability to move money around, between their own accounts or to those of others — businesses or people — is key to ensuring a full rounded money management proposition.
It is difficult to judge the speed at which we will start to see true, Open Banking-based innovation come to market from the large banks. It still feels like the initiative needs that to occur both to really take off across the ecosystem and for customers to start to properly understand the benefits of open APIs.
The success of the infrastructure players, and the interest in them from legacy firms in this space, has to signal a move in a positive direction on this front, and I’m hopeful that in 12 months’ time, I will be writing an update detailing the banks’ successes.
In the meantime, I would suggest taking a look at some of the services provided by the start-ups many of which are really exciting and have the potential to change the way you do your finances for the better.