The AltFi view on the future of Open Banking: More direction, less debate

Weekly Leading Article

News that variable recurring payments (VRPs) are being added to the open banking spec was celebrated by the industry last week as the implementation of open banking draws to its end.

However, the closing of this chapter opens the door to the next, where difficult questions remain unanswered.

What does the future of maintaining the open banking implementation look like—a question that the CMA is currently wrestling with, and which we should find out the answer to later this year.

Secondly, and more importantly, what’s next for the opening up of our financial data (i.e. open finance)?

Here, an answer is more difficult to pin down.

The FCA completed its first consultation on what the industry would like to see from open finance earlier this year... but the regulator’s 2021/22 business plan published last month contained no update on the next steps.

Open banking insiders mooted two possible reasons for its absence. 

Firstly, the FCA has enough on its plate, grappling with crypto and BNPL regulation. Secondly, there is uncertainty around where open finance will fit in with the government’s ambitious National Data Strategy that was recently rebooted.

The commonly held view is that open finance (and the broader ‘smart data’ initiative as the National Data Strategy calls it) remains a pipe dream for the UK, with “two to five years” being the best guesstimate.

One small window of hope is that VRPs may lead to open finance via the backdoor. 

As the CMA writes that payments will be enabled not only between current accounts, but also “from current accounts to savings and other accounts”—something that the UK’s biggest banks had objected against.

However, this accidental expansion of open banking to other types of accounts is hardly the kind of world-leading regulatory approach that the UK once had with open banking.

For that, you’ll have to look to Australia, whose Consumer Data Right (CDR) gives Australians the right to access all of their financial, utility and telecoms data.

Yes, this top-down open-by-default approach was undoubtedly slower to implement. Still, it means Australia now has a roadmap for the fast expansion of open banking into every corner of its citizens’ financial lives.

We need policymakers and regulators to work quickly to give more direction on what the future of open finance will look like in the UK. Lest our Aussie cousins put us all to shame.

The AltFi Leader is a new weekly view for 2021 from our editorial team. We’d love to hear your ideas, thoughts, feedback and constructive criticism. editorial@altfi.com