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Plotting out the roadmap to Open Finance

After a lengthy wait for the industry, the JROC has delivered its thinking on the future of open banking, and how to transition to open finance. But how secure is this pathway, and is the UK now at risk of losing its prime position?

Roadmap Slidebean on Unsplash

Towfiqu barbhuiya on Unsplash.

This is an excerpt from AltFi Research's 2024: Open Finance’s Moment To Shine report, which is available for free here.

The UK has built up an enviable reputation when it comes to open banking. 

In the first Open Finance Index, compiled by industry group Open Banking Excellence, the UK received the highest ranking in the world, with Australia five points behind and most competitors more than nine points lower. In many ways, the UK set the benchmark for policy-led innovation.

“The UK open banking ecosystem is thriving,” said Huw Davies, co-founder of Ozone API, who previously helped lead the growth of open banking at the Open Banking Implementation Entity (OBIE).

“We have seen significant investment, job creation and economic growth. We have also seen a huge amount of open banking-powered innovation, which is helping people to get better access to credit, enabling consumers to manage their money more effectively and giving businesses the ability to optimise cash flow.” 

However, market participants had been getting increasingly edgy waiting for an update from the Joint Regulatory Oversight Committee (JROC) regarding the future of the nascent sector, with many concerned that the momentum was starting to wane.

The JROC, comprising the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) as co-chairs and HM Treasury and the Competition and Markets Authority (CMA) as members, was created in March 2022 to design and oversee the next phase for open banking, and the pathway to open finance. It was a move generally welcomed by the industry. 

“Regulatory coordination is always a good move,” said Brendan Jones, chief commercial officer of Konsentus. “The UK has a plethora of regulators who all touch on open banking in some capacity—a holistic approach is therefore always welcome.”

In April 2023, the JROC finally laid out its thinking in a 50-page report, highlighting a two-year roadmap comprising 29 individual actions. The report has injected a new sense of energy and dynamism into the sector. 

Marion King, chair and trustee, Open Banking Limited (OBL), was quick to respond to the report’s release, saying that it “secures the future for our open banking ecosystem in the UK.” 

“In just over five years, the UK’s approach to open banking has created a world-leading regulatory framework, delivering competition, innovation and, most importantly, real-world benefits to seven million consumers and small businesses.”  

Huw Davies, Co-founder, Ozone

Huw Davies, Co-founder, Ozone

A Route To Further Success? 

The report outlines five key themes with delivery dates as soon as Q2 2023 on some actions. The roadmap themes consist of levelling up availability and performance, mitigating the risks of financial crime, ensuring effective consumer protection, improving information flows to third-party providers and end users, and promoting additional services—using non-sweeping variable recurring payments (VRPs) as a pilot. 

The accompanying actions for these themes are aimed at establishing a sustainable and competitive footing for the ongoing development of the open banking ecosystem, and—importantly—adopting a model that is scalable for future data-sharing propositions and the eagerly-awaited transition to open finance. 

The JROC has stated the roadmap is “necessarily ambitious”, but is confident it can be achieved if “stakeholders collaborate effectively.” Collaboration has underpinned open banking since its establishment, and will continue to do so moving forward. 

In terms of immediate wins, payments is where the report will have the most impact. It explicitly outlined that the ambition of the JROC is to enable open banking payments to act as a competitor to card payments, specifically calling out retail payments. 

It also highlights the upcoming steps that will be taken, including producing a framework for the collection of fraud data so that banks and technology providers can better align to tackle the issue. This will help to fuel the broader adoption of open banking payments. 

And perhaps most notably, it talks about premium APIs, like VRPs and data APIs, that were not part of the original CMA order. 

“The focus on non-sweeping VRPs will unlock new use cases and heighten open banking’s potential,” explained Jones. “Combined with enhanced consumer protection, this will further progress in account-based payments…

Want to keep going? Read the full feature in AltFi Research's 2024: Open Finance’s Moment To Shine report, out now!

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