Yesterday marked the first anniversary since the implementation of Open Banking in the UK, with industry stakeholders lamenting a lack of consumer understanding and limited progress in terms of new products and services.

Arnold Koudijs, financial services principal at Pegasystems, said that while big banks have been forced to open up customer data, only the bare minimum has been done so far.

“These institutions are unsure how a full embarkation would impact their business models, which has resulted in a lacklustre attempt at implementation: no greater protection of consumers interests, no increase of competition levels, and no increase in efficiencies,” he stated.

“There is something needed to fuel the progress and to overcome the potential one-year itch we are feeling – it is the customer.”

Koudijs argued that from the second payment services directive (PSD2) regulations which Open Banking is based on, there is no motivation for banks to move beyond the minimum requirements.

“On 14 September, banks should have the so-called technical and secure open standards in place, of which the scope is not fully clear yet,” he explained. “Open and secure standards will assist in developing financial aggregation solutions, using fast and easy onboarding, making relevant financing offers, better credit decisions, at a more competitive price.”

Commercial over consumer

Stuart Chalmers, managing director for commercial banking at Accenture UK, commented: “A year on from Open Banking and its promises to shake up the banking sector, we are yet to see the impact in our day-today lives and many of the UK’s large corporates remain unconvinced.”

Despite this, he predicted that in 2019, the big banks move beyond consumers and turn their attention to growing open banking services with commercial customers, as this has the potential to deliver double-digit revenue growth.

“This will be a big challenge as only 27 per cent of the UK’s largest corporates have adopted open banking, one of the lowest rankings globally,” Chalmers continued. “By 2020, we expect this to rise to almost two thirds, but banks are set to lose out if they fail to persuade corporations to partner with them.

“Currently, two fifths of businesses in the UK would prefer not to partner with a bank for open banking services – so to avoid missing out on new revenue streams and becoming transactional players, banks need to prioritise collaboration with FinTechs.”

Security concerns

Yogesh Patel, chief technology officer at Callsign, pointed out that as banks move towards the final regulatory deadline in September, PSD2 and strong customer authentication (SCA) will lead to more abandoned transactions than usual if a more appropriate user authentication technology is not implemented.

“As users become accustomed to being prompted for credentials in situations other than direct online banking services, the opportunity for a new set of phishing attacks and the orchestration of false authentication journeys is created,” he explained, adding: “This exposes consumers to a new set of risks that don’t exist today – despite the fact that the intent behind the PSD2 is to reduce fraud and risk.”

This creates something of a dilemma for banks, said Patel. “While they’re required to open up access to accounts through the PSD2, they’ll face significant penalties under GDPR if that access is breached.”

This means there’s a premium placed on getting the implementation of SCA right and on ensuring that the digital identities of financial institutions’ customers are properly controlled.

Official figures

Since the managed rollout began at the start of 2018, the Open Banking Implementation Entity (OBIE) reported there are now 100 regulated providers, of which 17 Third Party Providers (TPPs) are now using Open Banking in the UK.

Open Banking technology was used 17.5 million times in November last year, up from 13.9 million in October and 6.5million in September, with Application Programming Interface (API) calls now having a success rate of 97.7 per cent.
Imran Gulamhuseinwala, trustee of the OBIE, commented that with the line of sight into the Open Banking pipeline, the number of firms and users is going to considerably ramp up in 2019.

“Our focus is firmly fixed on delivering an enhanced user experience - I am confident that post March and with the implementation of version three of our standards - will see a more mobile-enabled and frictionless customer journey.”

Tom Renwick, strategy analyst at Atom Bank, pointed out that very few aside from the most ardent of Open Banking enthusiasts were expecting a ‘revolution’ last January.

“Whilst the OBIE has made significant strides towards a more expansive API specification, there is still much to be done,” he stated. “The implementation of Open Banking in the UK is still very much in its infancy, equally, compelling API enabled propositions are still nascent in their development.”

He noted that PSD2 requires strong customer authentication to be performed in certain circumstances, so it is imperative for the success of the wider ecosystem that banks ensure that the experience is easy, intuitive and secure.

“Unfortunately, a number of market implementations fall short of these critical design principles,” he added.

Indifferent public

A YouGov survey in August showed that almost three quarters (72 per cent) of UK adults had not heard of Open Banking at that point, with several industry players bemoaning the slow start to the first six months of the regime.

Lu Zurawski, consumer payments practice lead at ACI Worldwide, said that the new regime has faced a largely indifferent or even sceptical public, who are only now beginning to grasp the significance of the change.

“Open Banking is no longer just a regulatory project forced upon the UK’s nine biggest banks – now over 20 banks have now opened their account systems to new service providers, and over 80 new companies have registered as an Open Banking provider of new customer-friendly financial services,” he stated.
“Although it is still early days and some may scoff that the transaction volumes flowing through these new providers are still small, it’s interesting to note that Open Banking has already brought changes to competition and choice.”

Zurawski cited Yolt as being one of the biggest new service providers which has used Open Banking to enter the UK market on behalf of its backer ING. “And not all new service providers are small start-ups - they include HSBC, Citibank and Lloyds - in fact most big banks have been forced to consider how to compete in this new era of customer-centric, app-based services.”

Leon Muis, chief operating officer at Yolt, said that 2019 is set to be an exciting year for Open Banking as the legislation moves into the next phase to include credit cards and savings, plus the increasing availability of Payment Initiation Service APIs.

“The success of APIs has been proven and it is now time for all UK banks to improve the quality and availability of their APIs to enable more consumers to benefit from Open Banking,” he added.

Legacy systems

Dave Locke, chief technology advisor at World Wide Technology, said the initiative has caused a significant surge in the number and type of financial service providers, with the knock-on effect of traditional financial institutions needing to safely unwind their technical debt to compete with new entrants.

“However, the complex nature of existing systems built with conflicting metrics over the years acts as a significant barrier to this – legacy infrastructures are typically built from an interdependent patchwork of applications, which communicate with one another in complicated ways,” he stated, adding that challenger banks are born on the cloud and don’t have to contend with such problems.

“Currently, banks have two major advantages over the latest FinTech players: an established customer base and the data that comes along with this,” continued Locke. “To capitalise on this and stay competitive, they must gain extensive insights into the existing infrastructure to create a real-time picture of the entire network, allowing them to rationalise the way that different applications share data within the system.”

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