- The UK’s Open Banking regime has turned three years old.
- This marks an opportunity to look back at its successes so far and the challenges it faces post-Brexit.
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The UK’s Open Banking Implementation Entity (OBIE) has marked three years since open banking went live across the UK and Europe, per a press release seen by Insider Intelligence. Since the EU’s PSD2 came into effect on January 13, 2018, regulated third-party providers (TPPs), such as fintechs, can integrate with banks’ APIs to access consenting customers’ bank data and offer financial products.
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In the UK, the OBIE designs the standards for secure APIs and ensures the effective implementation of open banking nationwide. Since the UK left the EU on January 1, 2021, the country is no longer bound by the PSD2, meaning it will now chart its own open banking course separate from the rest of the EU.
Since 2018, open banking adoption among UK consumers has surged, followed by the rest of Europe.
- Financial concerns amid the pandemic have driven UK consumers’ open banking usage. Over 2.5 million UK bank customers now connect their accounts to trusted third parties, up from 1 million in January 2020, per the press release. The rapid growth is likely due to rising fintech adoption as consumers turn to money management apps to help them better handle their finances amid pandemic-induced economic woes. Many of these fintechs use open banking to connect to users’ bank accounts, such as personal finance management apps Snoop and Plum.
- The rest of Europe has been slower to adopt but is now catching up, spurred on by open banking fintechs providing secure APIs. There were 178 firms in the UK that were permitted to share bank account and payment information with third parties in October 2020. Germany came second with 36, which is more than France (18), Spain (9), and Italy (6) combined. This is likely because the OBIE enforced more unified standards for using open banking, such as just one messaging format and user experience, than its European counterparts. Yet 2020 saw accelerating adoption across the continent, thanks in part to secure API providers that act as intermediaries between the banks and fintechs to ease data sharing: Yolt Technology Services has experienced 10% month-over-month growth in open banking calls in the past year, and its API now connects to 80% of bank accounts in Italy, France, and Spain. Sweden-based Tink, meanwhile, scored a $108.5 million megaround in December, with its API enabling more than 3,400 banks across Europe to securely share customer data.
However, Brexit-induced regulatory changes could impose setbacks to open banking usage in the UK, unless the government steps in to offer clearer guidelines. The country’s Financial Conduct Authority has warned financial firms that they won’t be able to use the EU’s certification standard to share customer data after June this year. The regulator added that it is on banks to make the necessary tech changes to their systems and inform TPPs as to which alternative certificate they will accept to continue sharing data.
This gives banks little time to adapt and risks blocking UK consumers from accessing open banking products, leading to customer dissatisfaction with fintech apps, which could reduce trust in the long run. Banks may also differ in what new certification regime they will adopt, leading to regulatory confusion and higher compliance costs for fintechs. The government should therefore provide additional guidance, perhaps via the OBIE, on replacing the EU’s certification regime to avoid this disruption.
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