Open Banking ‘could add £1bn to UK economy’
Written by Michelle Stevens
Open Banking has the potential to unlock £1 billion in additional GDP for the UK annually, a new study has claimed.
The Centre for Economics and Business Research (Cebr) accessed the impact on the economy of the new Open Banking standards – the UK’s initiative to implement requirements of the EU’s second Payment Services Directive (PSD2), which came into force in January.
The Open Banking standards for APIs will see third party companies able to access consumer and SME banking information – with their permission – in a move designed to create greater competition in the financial services and payments sectors.
Cebr estimated that 17,000 jobs could be created by this expanded market, and that banks themselves would also benefit from the improved information available, by charging customers interest rates based on more accurate risk profiles.
This would reduce the ‘credit spread’ that existed today and free up more money for productive use in the economy, Cebr noted. It found that every one per cent reduction in the credit spread on mortgages would lead to a £153 million increase in GDP, with Open Banking assumed to result in a seven per cent reduction in today’s credit spread, totalling £1.069 billion in additional GDP.
Cristian Niculescu-Marcu, head of micro-economics at Cebr, explained: “By improving the transparency of current account data, Open Banking means more third parties will have access to customer data, which can lead to a reduction in the risk premium currently charged on interest rates linked to products such as mortgages, due to a clearer understanding of a person’s underlying credit risk.
“Our analysis suggests Open Banking will have a positive impact on UK GDP as additional funds become available for productive use in the wider economy, but the degree to which these economic benefits are realised is dependent on the readiness of consumers to consent to sharing data.”
The Cebr study, which was commissioned by online review platform Trustpilot, also highlighted recent Accenture figures which stated that 69 per cent of people may not consent to share their banking data with third parties.
Glenn Manoff, SVP at Trustpilot, cautioned: “As research from Accenture demonstrates, the industry will need to work extremely hard for the £1 billion annual GDP benefit to be fully realised by demonstrating that consumers can trust them with their banking data.”
But he added: “By giving customers the choice to provide their financial data to third parties, Open Banking is set to unleash significant innovation across UK financial services. The new standards will also increase competition and remove information barriers as a plethora of new FinTech players access the data necessary to provide compelling new services.”