NatWest is calling on the financial services industry and regulators to work together to resolve obstacles holding back the wider adoption of open banking.
A report from Oxera, commissioned by the banking giant, identified the key challenges to growing open banking in the UK as a lack of commercial incentives to develop new use cases, along with a lack of alignment between banks on the benefits of open banking.
The report has recommended three possible routes to address the challenges holding back open banking adoption.
It suggested a mandate for banks to offer a wider range of use cases that can be used by fintech companies through free APIs, which are software protocols that connect different services. It also encouraged banks to expand these offerings through premium API options.
It also recommended a multi-party system where there is a commercial incentive to grow the open banking ecosystem through the design of new, flexible frameworks for industry collaboration.
Since its introduction in the UK in 2018, open banking has been rapidly adopted, with more than seven million businesses and consumers having used it to date.
Furthermore, a separate report found at the start of the year that the six largest banking providers, including NatWest, had all implemented the requirements of the Open Banking Roadmap, which was established to encourage adoption.
Open banking adoption
Despite these positive figures, the new NatWest report noted that this represents only around 10% of consumers and SMEs, while traditional payments dwarf the use of open banking alternatives.
“This report makes it clear that banks, fintechs and regulators need to work together to design new, flexible frameworks and commercial incentives that will support a far wider range of open banking use cases,” said Claire Melling, head of bank of APIs at NatWest Group.
“By acting on the recommendations in this report, we can enable open banking to reach its full potential and, ultimately, deliver new and enhanced propositions that will improve customer choice and experience.”
Nima Montazeri, chief product officer at the London-based fintech Liberis, told UKTN that the recommendation to mandate banks to offer a wider range of use cases through free and commercialised premium APIs can “benefit customers by offering a streamlined financial experience, and provide an additional revenue stream for banks”.
Montazeri added: “Enabling multi-party systems through flexible, collaborative frameworks can drive the growth of the open banking ecosystem, and give way to greater innovation.”
Nick Reid, head of strategic growth for europe at BankiFi, told UKTN that the “general principle behind Commercial APIs is a good one”, saying it can help banks “see the commercialisation opportunities associated with open banking”.