Three years have passed since the launch of the UK’s Open Banking initiative. On 13 January 2018, the second Payment Services Directive (PSD2) came into force, enabling regulated third-party providers to access a customer’s bank account information (with their consent).
This was a significant milestone for the UK’s financial market. Open Banking was designed to increase competition and innovation in a sector traditionally dominated by large financial services companies. Banking APIs would break down the barriers standing in the way of data sharing, and enable new providers and technology companies to enter the market, offering better services for customers, and at lower prices.
With technology at the heart of the initiative, the UK’s Open Banking system signalled a transition of power to the consumer. Soon, banking customers would have a plethora of options to choose from when it came to shopping around for the best deals.
Given that we are entering the fourth year of Open Banking, now is the right time to reflect on the achievements already made, and what’s in store for the future of the initiative.
Collaboration has not always been a strong suit of the financial services sector, but the introduction of Open Banking has already encouraged much greater cooperation between players in this space. The requirement for all UK-regulated banks to allow customers to share their financial data with authorised third-party providers has served to level the playing field between incumbent legacy banks and smaller fintech challengers.
Innovation has become a shared goal, with the benefits of closer partnerships filtering down to the consumer. Better products and services are being created every day, with the added benefits of a more interconnected and open financial ecosystem.
The advantages of enhanced collaboration can already be measured. Increasingly, banking customers are exerting greater control over their finances; finding better deals; and generally making more informed decisions, thanks to having a clear view of their finances via new apps and digital platforms.
No doubt, early development has been positive overall. But one key issue stands in the way of more widespread adoption. For the most part, consumers have a limited awareness of how the initiative impacts them on a day-to-day basis, with only 18% saying that they currently understand what Open Banking means for them.
The COVID effect
No discussion about Open Banking would be complete without reference to the impact of COVID-19. As previously mentioned, awareness amongst the majority of consumers and even businesses about the practical benefits of Open Banking is still somewhat lacking. Yet, COVID-19 has gone a long way towards uncovering the value of simplified data sharing.