The Open Banking Expo brought together the key participants in the open banking ecosystem with financial institutions, fintechs, and regulatory bodies all under one roof at the Business Design Centre in London. The prevailing feeling was one of optimism about the potential for more frictionless data sharing to deliver fairer customer outcomes, more competition and innovation, and exciting use cases over the next few years.

Here are some of our key takeaways from the two days:

Open Banking Payments Have Taken OFf; Consumers and Merchants Love them

Open banking payments adoption keeps climbing in the UK: Just under 10 million (9.7 million) open banking payments were clocked in the UK in June 2023 – a staggering year-over-year increase of 88%.

Variable Recurring Payments (VRP) were a hot topic of discussion. VRPs have the potential to drive cost savings for customers in a convenient, flexible, and secure manner.

Consumers give permission to authorised third party providers (TPPs) to connect to their bank accounts and make payments on their behalf. VRPs are similar in principle to direct debit, but their extra value is that the amount and date of the payments can differ depending on pre-agreed parameters:

• ‘Sweeping’ VRPs involve the automatic transfer of money between customers’ own accounts (‘me-to me’) and are mandated by the Competition Markets Authority (CMA) and can enable cost savings by moving surplus funds into a savings account with a higher interest rate when a current account balance hits a specified amount, for example.
• ‘Non-sweeping’ VRPs differ as they are between customers and merchants and are not mandated by the CMA – and subsequently less well-developed – but offer further money saving opportunities for customers through automatically pausing subscriptions when account balance falls below a certain threshold, or executing bill payments when a customer’s monthly salary is paid, for example.

UK consumers are using open banking payments to pay their bills and top up their accounts. We heard about exciting use cases with several major banks enabling ‘pay-by-bank’, such as HSBC.

And open banking payments are increasingly spreading to merchants. Through ‘Pay-by-bank’ or ‘account-to-account’ payments, merchants can drive significant cost savings while also providing a convenient customer experience. Unlike traditional payments, open banking payments can settle directly using faster payment rails and, crucially, without intermediaries. Without card fees, this is a far less costly way for merchants to accept payments, whilst also providing their customers with an additional payments option that is easy and secure.

Open Banking Is Evolving and SPreading Across Financial Services and Beyond

The consensus among speakers was that open banking is just the tip of the iceberg – and the technology now in place that enables data sharing will unleash significant disruption across financial services. Open finance is rapidly developing as innovative firms get ahead of the regulation and take advantage of data sharing opportunities.

Open finance is the next step in the data sharing evolution. It encompasses not only transaction data from banks and payments services but across a consumer’s full financial footprint, including pensions, mortgages, investments etc. We heard about how open finance will create fairer consumer outcomes. One example of this is more accurate credit decisioning powered by more information being considered – such as transaction data - when lenders assess credit risk worthiness. This could enable greater financial inclusion by giving more individuals and small businesses that don’t meet conventional credit scoring criteria to borrow, while lenders can grow their books without taking on any more risk.

Additionally, financial institutions can take advantage of embedded finance opportunities in which they provide their licenses and infrastructure to non-licensed firms who then in turn can offer financial services products. Tom Bentley, Head of Growth at NatWest Boxed, outlined the opportunity for banks to widen their distribution through embedded finance and Banking-as-a-service (BaaS) opportunities.

We also heard about the possibilities beyond the financial services ecosystem with the future of open data. More data sharing could lead to better deals for customers on bills as we heard from leading energy and telco providers on their role in the future open data ecosystem.

There was a strong belief that the next phase of open banking and open finance is being driven by the market rather than solely relying on regulatory mandates and will take on a hybrid flavour.

UK Regulators Aren't Resting on THeir Laurels - but More COncrete Action Is Needed 

The UK led the way with Open Banking regulation – and it inspired jurisdictions across the globe to follow suit with their own local-flavoured versions. The unprecedented data sharing mandate and successful Open Banking adoption is a jewel in the crown of the UK.

Yet it was debated on-stage whether the UK was losing its crown in the absence of further data sharing regulation and other countries pressing on with expanding its scope. Lord Chris Holmes dubbed Open Banking the “Great British creation…. now taken on by other jurisdictions” in his keynote address. Fast followers in Latin America have launched Open Finance initiatives, such as in Brazil and Mexico. And it appears the US and EU are closing the gap on the UK’s progress towards Open Finance regulation: the US’ Consumer Financial Protection Bureau (CFPB) just proposed a rule last week that could enable open finance data sharing, breaking with its market-led approach to Open Banking for the next iteration of its open data journey, while the European Commission has proposed its draft Open Finance Act.

UK regulators are by no means inactive on the matter, with the recently formed Joint Regulatory Oversight Committee (JROC) squarely focused on developing the next phase of Open Banking, setting out its recommendations in April. And the Centre for Finance, Innovation and Technology (CFIT) - which has an objective to strengthen the UK’s position as a leading fintech hub - considers open finance as integral to future innovation. While the UK’s new data sharing laws (Smart Data), part of the wider Data Protection and Digital Information Bill, were laid before parliament in March and will aim to increase private sector data sharing.

Yet there was widespread agreement that more needs to be done to capitalise on the UK’s first-mover advantage. Financial services industry figures called for concrete regulatory timelines to work towards to spur innovation alongside market efforts.

Industry and regulatory figures were still bullish that the UK could continue to lead the way in newly forming open data ecosystems. Collaboration across the industry between banks, fintechs, and regulators was highlighted as the means to future success. In addition, building consumer and business trust were flagged as key elements of scaling future adoption.

More so, recent innovations in the UK reaffirm its position at the epicentre of innovation, including the HMRC becoming the first global government department to roll out an Open Banking-enabled solution for public good in February. And, more recently, Apple launching its digital wallet account balance feature in the UK before anywhere else, paying testament to the UK’s Open Banking prowess.

Incumbent-fintech Partnerships Key To Innovation and Becoming Less Cumbersome

One of the steel threads running through the two days was the fruitful partnerships between incumbent financial services firms and fintechs. We heard about several Open Banking use case success stories enabled by incumbent-fintech collaboration, including:

• HSBC & Token’s ‘pay-by-bank’ case study that is enabling HSBC’s commercial banking customers to offer Open Banking payments.
• OVO & American Express just announce they have teamed up to also launch open banking payments for the energy provider.
• European Open Banking platform Tink has provided the technology for several incumbent banks such as NatWest, ABN AMRO, and Bank Norwegian to develop their own Open Banking-powered solutions.

Beyond the comprehensive list of use cases, it was equally encouraging to hear both sides so effusive about collaboration with their incumbent/fintech counterparts. Prominent banks discussed how well-documented early teething issues with contrasting working styles and cultures are becoming less of a roadblock.

More seamless incumbent-fintech collaboration alongside dynamic open data ecosystems augurs future innovation for the UK’s financial services industry and better products and services for their customers.

How Can BJSS Help?

We combine extensive tech and engineering experience with our future of service solutions that will help financial services firms develop APIs and select the right open finance strategy. Our recent experience includes:

• Helping a top-four UK bank meet Open Banking regulatory targets.
• Enabling a leading UK retail bank to lead the way with open banking: We partnered to successfully modernise the bank’s open banking services, securely migrating the APIs to the cloud.
• Working with a leading global investment manager to explore and develop an open finance strategy.

Learn more about open finance and the related opportunities for financial services firms in our white paper ‘Top Financial Services Trends in 2023: Open Ecosystems Become Ingrained in Financial Services.’

Want to Know More?

We regularly hold sessions with financial services leaders on the best way to leverage digital solutions to achieve faster sales and profit growth. Get in touch if you’d like to know more about open banking, data management, or our other areas of expertise in financial services. You can also click here to learn more about our work.