Words: Peter Wells
Illustration: Aleksandar Velasevic
Change is coming. The web has made that inevitable. Open will win and open banking will happen. Whether it is here in the UK or in another country first will not matter, as long as we learn the lessons from it in the UK and make sure that everyone benefits from the better services it will bring.
What do we mean by open data? At the Open Data Institute (ODI) we describe data as sitting on a spectrum running from closed, to shared, to open. What defines where data sits on this spectrum is who can access the data. Closed data is only usable within an organisation. Shared data is accessible by a set of named individuals or named organisations and then there is open data that anyone can access, use or share. Much of the world’s data, if not most, is in the wrong place on the spectrum. It could be that it’s too open and that risks privacy and trust. It could be that it’s too closed and that is reducing the value we can get out of it. From our projects, startups, research and evidence — the things we have learnt over the last five years — we know that we get the most impact when data is as open as possible while respecting privacy.
In 2015 the ODI was invited to help set up the initial Open Banking Working Group (OBWG), which called for an open banking standard and the introduction of open banking APIs [Application Programming Interfaces — these will enable services to be built using open and shared data from banks and customers]. An open API is a means of accessing data based on an open standard. It’s a public interface with a surrounding legal and security framework — it’s not just about the technology. It will help provide access to open or shared data but the surrounding framework minimises the risk.
The OBWG agreed better positions on the spectrum for banking data. For example, information on branch locations and whether they have disabled access, or information about bank products should be open for anyone to use, whilst people should be able to share their bank statement data with their consent with other people and do it electronically and simply. By moving the data to the right place on the spectrum and creating the right infrastructure around it (things like skills, open standards, security, policy thinking, communications, research and evidence) we get the opportunity to increase competition and innovation, and develop better services. This is how we get the most value out of that data.
Switching, standardisation, services and serendipity
By opening up the bank product information we’re allowing people to compare products across banks so services like price comparison websites will find it much easier to do their job and will be able to give much more information for someone looking for the best deal. Other people may not be planning to switch their account but their credit card product may be with someone else. Using the open banking APIs we will be able to aggregate services, so that people can manage their finances in one place, even if they have products with multiple financial institutions. This is down to the creation of new services that sit on top of the data infrastructure.
As we make data as open as possible it increases serendipity. People can experiment and try new things. Some of the ideas that people talked to the Open Banking team about included a credit card provider which could build products that adapt to the state of someone’s bank account — things like how much money they have and how much income they are due to get. Another idea revolved around using bank data (shared with permission) to help people moving country to prove their identity or rent a flat. Another is financial exclusion. There are two million people in the UK without a bank account. By making it possible for people to innovate using the data held within bank accounts, can we encourage new, more appealing banking services with greater benefits?
In terms of regulation, open banking can help move us from a tick box compliance exercise to an opportunity for innovation. If we standardise the flow of data around institutions, it gives regulators a chance to ask for more standardised reports so we can improve the effectiveness and reduce the cost of regulation.
The banking industry is already changing due to the growth of the web and the reduction in the cost of software. This has significantly raised people’s expectations of the services they receive, leading to a change in business models to focus more on service level and added value; that’s what led towards fintech. The open banking standard can help banks build trust, demonstrate how they are acting in customers’ best interests and help them get ahead of the regulatory curve. An open standard can become a global open standard that creates expansion opportunities whether for fintechs or banks looking to offer services in other countries. But open is not just about data. There are other aspects such as open source, open culture, open innovation. A collaborative approach helps improve the culture in banks and shifts it towards something that you would see in modern organisations, such as the fintechs. Opening up the sector in this way uses the strengths of the different parts of the ecosystem to create opportunities and build better services for the customer.
Clarity on the challenges
We recognise that there are barriers to be overcome in the finance world. We often think of ourselves as being in the culture change business as much as being in the data business. If you are working openly, that means giving up some control and potentially working with people who may also be competitors. We were fascinated by how many banks could not collaborate on documents using the type of collaboration software widely employed across the digital sector. There are legal barriers to overcome too, including the question of who is responsible if data is misused. Much more effort is needed to make that clear so that customers have the protection they expect and to put the liability at the right point in the value chain. On the technical side, banks will need to get the data both in and out of their systems and many banks retain a lot of legacy technology.
A chunk of the institutions involved in the early OBWG report knew there was a need to change and felt it could build them into better businesses but we know there are others which don’t think they will be able to change and may try to slow things down. It’s a heavily regulated industry and there can be a culture of waiting to be told what to do, it can be difficult to get people on the front foot. We have to recognise that some companies feel threatened. But this open future for financial data institutions is inevitable and as we have seen in many other sectors it’s going to require a change in business models. That change creates opportunity for those who dare to take it.
Another area where we must work hard is in improving data literacy. It must be clear to customers that open banking does not make all banking data open to anyone to use. Customers must understand that access to personal data such as transactions would only be given with their permission and understand who to give that permission to. To overcome the risks we must bake strong security into the open banking standard and learn the lessons from other sectors and the technology industry in how to do privacy by design and security by design.
There is a challenge too in ensuring that it is not just the technology-savvy who benefit. The industry needs to actively engage groups who are interested in the challenges around financial exclusion and digital exclusion. They could set challenges and give support to stimulate the market there. For example, the industry could offer a prize for someone who develops a service to help people who can’t use a computer — to build a human intermediary service on top of the open banking standard — and then fund the winner to turn it into a sustainable service.
Towards an open future
This year’s Competition and Markets Authority (CMA) retail banking market report [Making Banks Work Harder for You] was focused, in data terms, on achieving compliance from the nine major retail banks. As the open banking standard is developed it needs to fill the space beyond those big banks — the challengers, fintechs, data aggregators and consumer organisations — so that it doesn’t just become a compliance exercise based on one CMA report. I would also expect to see international movement towards a global standard. At the ODI we have been in conversation with groups from France, Australia, the USA, New Zealand and Japan to explain the work that is happening and to see how we turn it into something like the web — truly global. Data knows no boundaries and we need to think of this as a global standard. We also need to look to similar initiatives in other sectors like pensions, savings and credit cards and then to areas like telecommunications and utilities — starting to build that ecosystem. Some of that can be led by the government but it could also be people choosing to get together to solve common problems. We are currently working with the sports sector in England and that is a voluntary exercise.
“Open data gives us a competitive advantage at a country level as well as for an organisation, so there’s an imperative there for the UK to take the opportunity that’s right in front of us”
Organisations don’t have all the answers on the inside. You have to look to the outside where the best answers will often be found. That means engaging with other organisations, bringing together groups and working in the open to solve common problems.
We have a very strong fintech industry right now in the UK, and this offers a competitive advantage. Look at the example of the transport sector. The UK was a big leader in opening up transport data and that led to the creation of lots of jobs in London. Transport for London opened up their data, which has allowed lots of new companies in London to export services, because they learned how to do it first. Open data gives us a competitive advantage at a country level as well as for an organisation, so, there’s an imperative there for the UK to take the opportunity that’s right in front of us. Lots of the hard work has been done. Take that opportunity, build on it and build those centres of excellence whether in Edinburgh, Newcastle, Manchester or London.
Peter Wells spent 10 years at a consulting firm where he worked with telecommunications companies and regulators across Europe. In 2014 he worked in a voluntary role to help make an independent review of digital government for the Labour Party happen. He started working with the Open Data Institute in late 2014, first working on an initiative to recreate a list of UK addresses that could be published as open data and then supporting the policy team. He now contributes to research and debate and reinforces the message that data sits on a spectrum and is infrastructure for every sector of our societies.
Based on an interview with Simon Lyle, Editorial Director at White Light Media
This story is taken from the fourth issue of Poppy. Our print run is strictly limited but, if you are based in the UK and work in financial services, you can request a printed copy via the ReadPoppy.com website.