What next for Open Banking?
Nick Eatock, CEO, intelliflo
Before the implementation of Open Banking in January 2018, many experts talked about how it would shake up financial services, through greater simplification and increased competition. However, when it launched, it was largely met with indifference by consumers. Some of the bigger financial institutions showed limited interest too, failing to roll out the necessary functionality within the specified deadlines, possibly because of the feared impact sharing data with third parties could have on their profit margins.
Roadmap complete
Five years on, the Competition and Markets Authority has announced that the six largest banking providers in the UK (Barclays, HSBC, Lloyds, Nationwide, NatWest and Santander) have now implemented all the requirements of the Open Banking Roadmap1. So, has the legislation fulfilled its promise to revolutionise financial services and give consumers greater control of their money?
Today there are more than 6.5 million active users of services powered by Open Banking technology in the UK and 1 billion API calls (basically requests for data between systems) per month2. That’s certainly a success story. However, while a significant number of consumers are clearly benefiting from the legislation, the Open Banking Implementation Entity (OBIE), which was established by the CMA to oversee the implementation of the regulation, estimates in its June 2022 Open Banking Impact Report3 that only around 10% of digitally-enabled consumers and small businesses regularly use these services. So while the original implementation programme may be complete, it seems there is still work to do in fully realising the benefits and bringing them to the wider population.
For the advice sector, Open Banking, and opening up data across financial services more generally, offers a huge opportunity to deliver better financial outcomes for clients. There certainly seems to be an appetite among clients to share financial details if it is made easy for them. When intelliflo launched its Open Banking functionality in September 2021, many advised clients leapt at the chance to link their current accounts, credit cards and savings accounts to the personal finance portal (PFP). So much so, that it resulted in the inclusion in the advice process of £20 million of ‘held-away’ assets in just three weeks.
Improving accuracy
Being able to analyse a client’s bank transaction data, alongside their advised assets, provides a more realistic picture of their income and expenditure and their financial position. This will ensure that the initial fact find is based on accurate information, rather than many clients’ ‘finger in the air’ estimates of monthly expenditure, without the pain of spending hours going through bank statements. Open Banking functionality can also help with client budgeting, helping them understand how much they are spending in different categories and where short-term savings can be made to put towards longer-term financial plans.
A better grasp of banking transaction data can also drive conversations around financial priorities, especially if used in conjunction with tools like cashflow planning software to really bring it to life. Here the data can provide realistic forecasts of the income clients will need to fund their lifestyle in future – we all know of people who wildly under, or over, estimate how much money they need to cover their outgoings. Basing calculations throughout the advice process on actual client data will drive accuracy and credibility, in turn encouraging greater engagement and trust in the financial plan.
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Future uses
Opening up data beyond banking to include other financial products, would further reduce the time needed for advisers to pull together different information to get a genuinely holistic view of the client’s full financial portfolio. The Government too recognises the opportunity to build on the success of Open Banking and expand it into other areas of financial services. The 2021 Kalifa Review4, commissioned by the Chancellor of the Exchequer, recommended a further opening of the finance sector. It said: “The ability for individuals to access and share a full set of their provider-held financial data – beyond the bank transaction account data made available under Open Banking – will allow third-party firms to offer advice and optimisation solutions that will save them money and help them manage their savings, investments, pensions and insurance for better overall financial health.”
Although we’re five years on from the launch of Open Banking, it feels like we’ve only just started to fulfil the potential of sharing data across financial services. With the initial roadmap now complete, the next step is for more third parties to develop ways to use that data more easily within the advice sector, always with the individual’s consent of course, to create efficiencies, improve accuracy, increase engagement and deliver better outcomes for clients.
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1 https://www.gov.uk/government/news/millions-of-customers-benefit-as-open-banking-reaches-milestone
2 https://www.openbanking.org.uk/news/the-obie-marks-completion-of-cma-open-banking-roadmap-on-fifth-anniversary/
3 https://openbanking.foleon.com/live-publications/the-open-banking-impact-report-june-2022/
4 https://www.gov.uk/government/publications/the-kalifa-review-of-uk-fintech
