Open Banking UK: a quick reference learned by the FinTech Association

Conceived as part of the Her Majesty Treasury inquiry in open data for financial services, it became a conduit for building a reference read write API to support SME’s and allow the UK to lead when PSD2 comes into force.

2015 was the year, when George Osborne announced in his budget some first clear notes appealing to a fintech ear: to push up the competition thanks to data being openly shared and available. The premise was simple:

• opening up the data for comparison would improve the competition as people would compare and see the real cost of them supporting the major institution, the rescue operation of which went so dearly to the taxpayer.
• it would allow new ways to appraising risks with SME lending that has virtually stopped after the recession — with banks mending their wounds and not willing to risk the dear tier-1 capital, already under strain of stringent stress-tests from the Basel committee.

Still, major advancements came only as part of the Competition and Markets Authority study that have calculated the concentration index for current account and business account concentration for SMEs in the UK — and pushed forward with the official mandate for the major banks to do something about this: by financing according to their respective market shares the initiative to develop a standard that would:

• stimulate the automatic, data-driven comparison for personal and business users, already taking an interest in services to collectively manage their finances and recommend the best course of action;
• allow in time for a read/write API conforming with both the ethos of PSD2 (that, while being great in terms of outlining a sound solution for the modern world, missed out on acting cuickly on forming the technical standards that this world is used to operate on) and the outlines, a reference API that it delivered on time.

The Open Banking Working Group, meeting regularly and financed by banks required to deliver on the API in time, had nothing less than to iteratively arrive first to a set of APIs around products and channels, in March of this year, then proceeding to a reference read-write on checking account access, due in its stable form by Jan 13th 2018.

The benefits of “API-fying” product and channel data are the following:

• Opening data requires meta-data to be structured, so the staging process of them already improves the situation of the products becoming less complex and more standard so that comparisons and recommendation engines could make use of the information to the benefit of users;
• As people would spend less time reading but would increasingly act and choose the most flexible and diversely presented service — a platform, preparing data to be consumed through these platforms creates more — and better — use-cases.

The momentum is also important seeing how many advisory and comparison services have launched in the UK, benefiting from both the VC climate in the country and largly thanks to banks’ interest to improve their digital offerings (thus enabling the challengers and fintechs to consume the data made available as part of the digitisation efforts of banks).

The data-scraping in turn pushed more attention towards creating more stable and secure channels of data interexchange — reinforcing the drive towards open banking.

The lessons learned from the Open Banking UK are the following:

• originally pushed by the need to deleverage risks of account concentration, the need to standardise data to make it available for import / export also made it easier to read and compare — aiding to financial inclusion, literacy and ability to chose a better product;
• data staging accelerates the opportunity for other third parties to participate and improve the experience (for example allowing for the data to be compared by web search engines and vertical portals — creating more use-cases for the data to become contextualised (aiding in turn to the IoT development);
• banks were given a deadline, a proper motivation to work towards a goal, rather than be stalled in the process.