Open Banking: improving competition and driving benefits for consumers and small businesses
Matt Alder, Head of Payment Systems & Services, HM Treasury
Open Banking is going to fundamentally transform financial services, and empower consumers by giving them control over their own data. New Payment Initiation Services will create more choice for businesses and consumers in how they make and receive payments, creating a more competitive payments ecosystem, which should drive down transaction costs. Going forward, the hope is that payments in the UK will move beyond a market dominated by cards as new payment methods come online.
Building this competitive market will take time, but as these services move away from early adopters and into the mainstream, we will start to see real consumer trust develop with resulting tangible benefits across the economy. From the consumer perspective, we’ll see much better financial management with consumers able to budget and make payments from one central app. Consumers’ rich payments data also opens up financial services to personalisation in a way that it never has been before. Accurate spending profiles will enable tailored product recommendations based on what consumers actually need. As data helps firms to determine what is best for that particular consumer, I expect we will see a shift away from one account which does everything, and towards consumers using a range of different firms for specific needs (savings, overseas transactions, borrowing, etc.).
One area that is currently discussed less, but where Open Banking could also be genuinely transformative, is its application to small businesses. Small businesses have unique needs, from more flexible funding requirements, such as seasonal working capital, to needing access to larger pools of credit. By enabling SMEs to provide third parties with access to their rich payments data through open banking APIs, we’ll see more tailored, flexible products which respond to the needs of these small businesses
Clearly, there is a huge opportunity here. The big banks have started moving in response to this, which is already generating benefits to consumers and businesses, and new players are coming through all the time who could really shake up financial services for consumers and SMEs. As these services become more widely available and consumer adoption increases, I expect this will lead people to think deeper about their banking services and become less passive in how they engage with their finances, supporting them in their financial decision-making.
As a government representative, I am taking part in the Open Banking Summit to reiterate our support for the Open Banking programme. We believe that it will be transformative and it forms a key piece of the government’s agenda to increase competition in financial services to the benefit of consumers and SMEs across the country.
The PSD2 regulatory technical standards, which will apply from September 2019, mark another key point in the development of Open Banking. If banks, payment institutions and e-money firms haven’t started thinking about how they will implement APIs in time for this, then they should start to now! We are continuing to work with the Open Banking Implementation Entity as they design API standards to support the adoption and use of APIs. Standardisation is key to the success of Open Banking – it will help provide for a consistent user experience, helping to build trust, and it will make it easier for these new, innovative firms to provide these services. Work on Open Banking APIs is taking place in many countries. Initiatives such as the recently formed API evaluation group can help co-ordinate some of this activity, and support harmonisation. Ultimately, Open Banking is spreading across the world, and the UK is excellently placed to drive this forward and realise its potential.
Open Banking Summit
25 April 2018 London
Matt Alder will be joining us for the Open Banking Summit. This high-level, interactive forum will bring together senior-level professionals from all corners of the open banking space.
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