Tokyo FinTech
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Tokyo FinTech

The UK Open Banking debate

In the UK, a fierce discussion among FinTech startups has been triggered by Anne Boden’s — Founder and CEO of Starling Bank — comments in front of the Treasury Committee in October, where she described Open Banking “has not been a success”. The FinTech Founders group responded to this with a rebuttal, signed by 53 founders.

It is a refreshing discussion, and sheds some light onto what has been working, and what has not — in addition, as noted in the FinTech Founders’ response, the Kalifa Review of UK Fintech also created transparency that is missing in other parts of the world.

Here is what Anne said:

Could I say something about open banking? If the big banks said this, it would be seen as being big banks trying to have a go at fintech. Since Starling is a new bank and a fintech, and we are into technology, this will go down the right way, hopefully. Open banking has not been a success, for several reasons. We need to look at where it came from.

Open banking was part of the payment services directives coming out of Europe. It was a great idea for customers to be able to move their data around. The Competition and Markets Authority was constantly looking at ways of opening up the current account market, because of the concentration of current accounts with the big banks, and could not think of any other remedies: what are we going to do to do this? We have done all these other things and nothing has really worked.

It grasped open banking as a way of doing that: would it not be great if customers could take their data from bank to bank? That would encourage people to switch banks. It does not. Customers are not influenced to switch banks because they can take their data with them. They switch banks because they want a better service and are prepared to lose one bank and go to another. That is why people join Starling.

Then we have the second issue of people thinking that there would be lots of businesses set up to use this open banking data. Yes, there are rafts of fintech companies set up to use this data, but nobody had a business model, because nobody is prepared to pay for that data. The consumer does not want to pay an additional fee to a fintech so that they can consolidate that data. Above all of that, the implementations of open banking that we have are clunky. You would not want to use them.

I would be very careful, and we cannot just keeping pushing on at this because we think it is going to get us somewhere. Sometimes, you have to realise that it is not solving the problem and that other things are more capable of encouraging customers to switch. More people switched to Starling in the last quarter than to any other bank. Switching is just one thing that makes the market competitive, and open banking is a lesson in us trying to make something work when, halfway through the project, we realised it was not going to work.

And the FinTech Founders response:

Dear Treasury Select Committee,

The Fintech Founders group — and in particular those members whose names appear below — are writing to challenge the recent claim that open banking in the UK has been a failure — a claim made by Anne Boden recently when she was addressing your Committee.

This is not our view, and we believe that this view is uncompetitive and typical of banks trying to thwart the future of innovation in financial services. Although the technology has only been live since November 2018, open banking has already led to the formation of a whole host of new start-ups, raising hundreds of millions of dollars in new venture capital investment. There are now over 2.5 million open banking payments a month, compared to just 320,000 in the whole of 2018. Whilst the implementation has been far from perfect, and there are challenges — but we are still in the early stages of the journey.

Figures from Credit Kudos show that open banking enables an evaluation of a person’s financial situation and behaviour, four-times faster than how it is done without using open banking; and leads to a 15% increase in acceptance rates and 5.7% reduction in default rates.

The representation to your Committee was that ‘people want better service; they don’t want their data.’ However this is a dramatic oversimplification of the proposition provided by open banking. Open banking is bringing about significant benefits to consumers across the country: it offers people greater security and transparency, as well as a faster, more streamlined way of accessing financing.

Open banking has the potential to unlock even more innovation. It now needs to evolve realising the full potential of Open Finance as described in the Kalifa Review of UK Fintech, and banks trying to stifle this innovation need to be called out, and the market needs to continue to be educated about its benefits. The UK was a world leader in developing open banking and it is vital we maintain this advantage as part of our wider ambition that the UK retains its status as a global leader in Fintech more widely.

Fintech Founders shares the Treasury’s vision of a payments sector ‘at the forefront of technology and innovation in which the full potential of open banking enabled payments is unlocked safely and securely’, and we look forward to working with the Government to achieve this goal.

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