Insight: Four key steps to unleash UK’s Open Banking potential fully

The UK finds itself at a crossroads when it comes to Open Banking.

There are now 10 million consumers and small businesses regularly benefiting from using this technology, a huge milestone and testament to the UK’s commitment over many years to innovate financial technology.

Whether in bringing access to cost-effective credit, building a regular savings habit or making more informed financial decisions, Open Banking has already demonstrably improved ease of use and financial wellbeing for millions of people.

However, there is still much to be done to unlock the full potential of Open Banking and expand Smart Data schemes into other economic sectors. Here are four steps that legislators should take to unlock the UK’s Open Banking potential and benefit both the fintech sector and the country as a whole.

Establish a period of regulatory stability and predictability

After an extended period of uncertainty, we now need some stability and direction around Open Banking in particular, which can be achieved from regulatory consistency. Too often regulators’ action or inaction is having unintended consequences which, at their most harmful, have discouraged investors from backing startups in the sector and created friction for those that are already building.

Much of this consistency and predictability can be achieved through clear communication and having a roadmap. Over the past two years there has been very little tangible progress in Open Banking. The most notable update was version four of the standard, but even this update made the most important changes to error codes and payment statuses optional.

Meanwhile, the timeline for commercial variable recurring payments (VRP) keeps getting pushed back, and the lack of progress in the past two years has contributed to lower confidence and investment for the UK sector. If the UK does not make this progress, fintechs will look to grow in other markets where it is easier.

It is encouraging that the new government has got off to a strong start on these priorities by recognising the importance of fintech innovation in the King’s Speech. The Digital Information and Smart Data Bill updates the long-awaited Data Protection and Digital Information Bill. A key part of this bill will be bringing in the enabling legislation to create the future entity to manage Open Banking.

It’s vital that funding for the new body is put on a sustainable footing – the voluntary levy that is currently paid by about 20 fintechs, challenger banks, and high street banks, including Yapily, is simply not sustainable.

Promise explicit government support for Open Banking and Open Finance

If the UK is to continue building on the success it has had in fintech, the Treasury needs to give unwavering support for Open Finance, mirroring successful models from countries like Brazil and India. This includes making access to payment systems more straightforward and affordable.

Crucial to building confidence will be launching educational campaigns to boost consumer adoption.

Brazil’s Pix and India’s Unified Payments Interface (UPI) have both revolutionised their financial sectors through strong governmental backing. By adopting a similar approach, the UK will enable widespread consumer adoption of Open Banking, driving financial inclusion and fostering innovation.

This government support will provide the stability and encouragement needed for fintech companies to thrive, but it needs to be explicit and it needs to be quick.

It’s a positive step that the Treasury has committed to publishing a National Payments Vision, supported by the Bank of England, which will set out the government’s overall ambition for UK payments. It is crucial that Open Banking is featured.

Raise the bar

For customers to adopt Open Banking in greater numbers, it needs to “just work” and fintechs and banks need to work together to achieve this. Only when consumers have a good experience will they use it repeatedly. The sector needs to get to a point where conversion is on par, or better than, card conversion.

To achieve this, we need to revisit the end-to-end experience that a customer goes through; from signposting and education, to bank redirects, to how the customer gives consent for a payment or sharing data. And it is equally important to provide the best experience when something goes wrong, building on the payment status and error code work that Open Banking Limited started.

We need to pick up the pace on technology innovation again, opening up new use cases with commercial VRP (cVRP), but also looking at what other premium APIs we can bring to market. For instance, cVRP will allow customers to checkout with a single click and pay for subscriptions – two experiences which can’t be done today with Open Banking.

Create a flywheel

To make Open Banking a success we need banks to get fully behind it and invest in making it work. In order to drive adoption, we need current account coverage – few merchants will adopt a payment technology that only covers 20% of current accounts.

Since the biggest banks are not prioritising building up their capability or technology, we’re left with the status quo and its inadequacies. When banks become genuine stakeholders, the whole industry will grow faster. Banks should be required to open up access, but they also need to be able to make a return on their investment.

Incoming Treasury ministers should step up to ensure that the UK holds onto the lead it has established in fintech. By prioritising policies that support innovation and growth, legislators can secure the UK’s fintech future.

Open Banking offers SMEs and consumers the possibility of greater financial inclusion, robust competition, and world-leading innovation. With the right legislative framework, these benefits can be fully realised, ensuring that the UK remains at the forefront of the global fintech landscape.

Nicole Green is vice president API products, strategy, operations and policy at Yapily