Right now, the bank’s dominance over money is fading. The advancement in technology and evolving paradigms are giving fintech companies an edge when it comes to offering products, and services that improve the customer experience. But Open Finance is far from perfect.
New approach to Open Finance
In its new report, the Coalition for a Digital Economy (Coadec) advises the UK Government and regulators to take a new approach to Open Finance.
Founded in 2010 by Mike Butcher and Jeff Lynn, The Coalition for a Digital Economy (Coadec) is an independent advocacy group that serves as the policy voice for Britain’s technology-led startups and scaleups.
The report comes as the Government and regulators are embarking upon a number of ambitious reviews in 2020 including modernising payments regulations, open finance, and the broader UK fintech strategy.
Open finance didn’t take despite distrust
With the widespread distrust (66%) in traditional banks and financial institutions, the report suggests that Open Finance can help shape the way millions of UK consumers engage with their finances, provide better and more tailored financial deals, and promote financial inclusion.
Why?
Despite the distrust, Open Finance has failed to take off, with just over two million registered customers to date. The report, titled ‘Breaking Banks: A blueprint for Open Finance that puts customers first’, claims that this is in part because of overly-prescriptive technical standards, and anti-competitive security measures.
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What can be done?
Further, it argues for more of an Australia-style, market-led, approach to Open Finance. The Australian Consumer Data Right (CDR) will give consumers the right to access not just their financial data but also a utility and telecom data by 2021, even though they started their journey two years later than the UK.
The EU has committed to having an Open Finance framework in place by 2024, and the Government must move quickly to defend the UK’s fintech crown, says the report. The report also recommends
- The Government must grant consumers a new data-sharing right that empowers them to own and share their financial data once again.
- The Government must remove the 90-day re-authentication rule. It is an unnecessary barrier that is preventing consumers from accessing better financial services.
- The FCA must pursue a market-led, principles-based regulatory framework for Open Finance.
- The quick-wins for Open Finance will be in the savings, credit, mortgages, and pensions markets, and the FCA must make these the first sectors to open up their data first to consumers via open-source APIs.
The report also predicts that the quick-wins for Open Finance will be in the savings, credit, mortgages, and pensions markets, and the FCA must make these the first sectors to open up their data first to consumers via open-source APIs.
Commenting on the report Joel Gladwin, head of Policy at Coadec, says: “What Open Banking has shown that when the consumer is in control of their data and who they share it with, this can build trust, drive engagement, and empower activity. But the banks were able to send armies of slick lobbyists and magic circle lawyers to Brussels to build extra barriers to fintechs and maintain their gatekeeper roles.”
“By granting consumers a new data-sharing right, and encouraging a market of API specialists to compete in building the plumbing for Open Finance, banks will have very little room to manoeuvre this time. Ultimately, this will allow consumers to access better, and more tailored, financial services than they do currently,” Gladwin adds.
The report launches today at an event co-hosted by Ian Liddell-Grainger MP, chair of the All-Party Parliamentary Group on Open Banking and Payments, and Adam Afriyie MP, chair of the All-Party Parliamentary Group on Fintech.
John Pitts, global head of Public Policy at Plaid, says: “Open Banking paved the way for consumers to take control of their finances, but it didn’t go far enough. Open Finance is the next step; it will open up more sectors for innovation – and, ultimately, bring consumers more choice, convenience, and ease when it comes to managing their finances. With or without industry-standard APIs, the competition will allow firms that specialise in API development and integrations to build the infrastructure needed to make open finance a success.”
Coadec was founded in 2010 by Mike Butcher, editor-at-large of technology news publisher TechCrunch, and Jeff Lynn, executive chairman and co-founder of online investment platform Seedrs. It has over 3,000 startups in its network.
Main image credits:Wright Studio/Shutterstock
