Open Banking has been in the fintech headlines recently, once again being lambasted as something that hasn’t quite worked with some industry titans even labelling the initiative as a failure. Starling’s Anne Boden told MPs on the Treasury Committee “Open Banking is a lesson of us trying to make something work when halfway through the project, we realised it wasn’t going to work”.
The suggestion that the Open Banking project in the UK has failed is not entirely true. But has it worked as successfully as the industry anticipated? No. At Tribe we conducted research which found that Open Banking is regarded by fintech leaders as the most important financial services initiative today, yet the adoption rate has not been as strong as predicted.
So why do some see it as a failure?
One major reason for this is the operational complexity and high costs of developing Open Banking APIs, which has been a barrier to entry for many service providers. Because of this, banks and fintechs who have limited resources have been particularly slow to embrace Open Banking. Unfortunately, Open Banking has also suffered because the focus for many businesses was on meeting compliance obligations, rather than looking beyond that to the opportunities.
This created barriers to deliver utility and drive adoption, and meant the core aim of Open Banking – to boost competition and innovation in the market – hasn’t been fully met.
Despite the barriers, Open Banking can’t be so easily described as a failure, and in some aspects has worked well. Thanks to the technology providers in the middle, infrastructure is now in place that allows banks and fintechs to harness the power of Open Banking without having to invest in their own APIs. That way they can build and deliver services that add value to customers and drive further adoption of Open Banking. This has meant there’s better access to new products and services, there’s the possibility to offer greater customer personalisation and new insights are available to help people and businesses manage their money better.
We must remind ourselves that Open Banking goes beyond simply linking accounts and enabling better personal finance management. Open Banking can reduce costs for merchants, open up new customer segments, cement relationships with these customers and drive revenues, at a time when all three are critical to survival.
As for the future, Open Finance is set to be the sequel and surpass Open Banking in its scope and impact. With Open Finance, financial services innovators will develop better, more competitive solutions with access to data that was once held in incumbent silos.This means consumers and small businesses will gain more control over their financial data and receive more powerful and affordable services in return.
However, for Open Finance to work it must be embraced as an opportunity for a true customer-permissioned, multi-directional data exchange network, not dismissed as a compliance exercise that only benefits some firms.
Now is the time to ensure we learn from the challenges of Open Banking and ensure Open Finance is the success the industry needs it to be.
