UK’s open banking industry at a crossroads

While more than 4,800 people work in open banking in the UK and the industry raised over £886m last year, a lack of direction could derail the sector’s progress.

According to a report by independent advocacy group Coalition for a Digital Economy (Coadec), UK open banking industry is at a crossroads.

Coadec’s report said that there is an opportunity for the sector to move to the next level, but this could be lost to continental Europe if the wrong decisions are made by regulators.

In 2018, UK banks were required to implement the Competition and Markets Authority (CMA) open banking regulations, which led to the development of application programming interfaces (APIs) in banking to give consumers more control over their accounts.

The end goal was to increase competition in a sector dominated by big financial services companies. Customer banking data is shared by the industry through APIs, with customer permission, enabling businesses to offer tailored products.

More than seven million people in the UK used open banking last year, five years after the competition regulator forced banks to introduce services. According to figures reported to Open Banking Limited building societies, two million users were added in the past year.

But while open banking has seen gradual take-up and the development of a new sector of financial technology (fintech), the next phase of open banking – known as open finance – will go much further. Open finance will see firms share data across more services, such as mortgages and loans, also via APIs, and offer products and services from external organisations.

In its report, Coadec said: “A multibillion-pound sector stands on the precipice of taking flight beyond payment account data to open up a new frontier of innovation and competition.

“Alternatively, the darling of the UK’s fintech ecosystem could stagnate, condemned to tread water and to not fulfil the promise of the past few years, with the best and brightest firms forced to temper their (and their investors’) expectations or upsticks across the channel.”

Luke Kosky, fintech policy lead at Coadec, said: “The growth of open banking has been a UK-led marvel. We have seen this industry grow to over £4bn within five years, and with proactive support and regulation, the possibilities for Open Banking are endless. However, we now face a critical sink-or-swim moment for the industry.”

There is uncertainty in the industry about the sector’s future as firms wait for a report from the Joint Regulatory Oversight Committee (JROC), which replaced the Open Banking Implementation Entity (OBIE).

One of the demands of Coadec is to retain the OBIE past April, when its role was set to end. “It is absolutely vital that the OBIE continue in its current form in the short term to safeguard the integrity of the Open Banking sector,” said the Coadec report.