For two years, the UK finance industry has speculated and plotted about the arrival of Open Banking. Now, at long last, the wait is almost over.
The joint UK and EU directive, which forces the nine biggest UK banks to give customers control over their data, comes into force on 13 January, 2018, bringing the prospect of disruptive change to the stagnant banking market. Possibilities include everything from big banks going bust to the invasion of the Banks of Amazon and Google.
Entrepreneurs, however, remain wary. Open Banking hasn't been backed by a public awareness campaign, so consumers are at best ignorant, at worst fearful and confused. The limited initial scope only includes current account data, with credit cards and other payment accounts added slowly over the next two years. Last month, five banks, including HSBC and Barclays, announced they would miss the deadline to release their data.
Will Open Banking break the big banks' stranglehold on the banking market? Or – as some suspect – end up being suffocated by the incumbents?
To find out, I spoke to Imran Gulamhuseinwala, head of fintech at financial services organisation EY and implementation trustee of Open Banking Limited, the non-profit responsible for the system.
This conversation has been lightly edited for clarity.
WIRED: What problems is Open Banking designed to solve?Imran Gulamhuseinwala: The same problems the Competition & Markets Authority is looking at when it comes to banks. People are paying too much for their overdrafts; money is sat in current accounts not earning interest; there's not enough switching.
Although it happens to fix that narrow set of problems, what it does is enable a whole bunch of things that people haven't even heard about yet. The revolution that we've had in the last few years is a recognition that data is valuable - to the consumer, to the companies that own it and to the firms that apply their algorithms to it.
How does it open up banks' data?We're trying to build a standard API everyone conforms to. This means that if you're a fintech entrepreneur, and you want to connect with all the banks in the UK, it's one set of APIs and boom - they're all available to you. That's fantastically powerful.
In order to access it, you have to become a regulated entity. The regulations aren't onerous but you are either an account information services provider or a payment initiation service provider. The Financial Conduct Authority is taking applications.
What will startups be able to do with the data?The classic example is, at the moment there are tools that allow people to better understand their financial situation, to look at their own budgets and aggregate information from different accounts. About two million people in the UK use them but they have to give up their passwords to do so. So they really care about it. In Open Banking, that two million could become 20 million.
But that's still people just learning more about their finances: a financial dashboard. Open Banking also enables payment direct from accounts, so now could you turn that into a personal financial assistant? A service - and it may be powered by AI - that sits in the background and monitors everything that you're doing on a day-to-day basis and then tells you, "You're on the wrong credit card, you should switch." Then moving is a click away, as opposed to a weekend of admin.
Read more: To change how you use money, Open Banking must break banks
Is it safe?We have got some of the best security people in the country working on this stuff, both within Open Banking Limited, where we hold no customer data whatsoever, and then on the bank side. They've got great security teams and they're scrutinising what we're building. Neither us, nor the fintechs, ever hold the customer's password. The password is only ever accessed by the bank and the customer.
Could this open data approach be extended to other sectors?I think it's right to view the core of financial services as a utility. There are a lot of fun things that you can do on top, but at its core it is a utility and it has a lot in common with other utilities. So in my mind there is no reason why this couldn't be rolled out into the mobile phone and telco space, why it couldn't be rolled out into energy, water and, to some extent, into transport as well.
Could we see big internet firms – Amazon, Google – coming into this space?I must admit at the moment I don't see it. Financial services is the quintessential industry that other people don't tend to touch. Other industries don't tend to touch. They always give it a wide berth because, you know, the capital requirements are high, the regulatory burden is onerous. And so I haven't seen a long queue of other businesses coming knocking on the door and wanting to be at the forefront. I think there's more of a sit back and wait type approach.
Isn't Open Banking making banks pay for their own demise?There are banks that embrace it and banks that don't. For the ones that do, this creates more opportunity than it does threat. A portion of what the banks do today will become more commoditised, like plumbing. But the banks themselves need to be thinking about those additional services they can construct on top that actually makes use of the data.
The irony of all this was that the banks not only don't really allow the customer to use and access data, but they're not using it themselves, outside of a few small cases. So they need to rebuild and rethink exactly what they're doing.
Are they cooperating?You know what, they're on side. It is amazing. I half expected one of my biggest challenges to be insuring that the banks continue to back what we're doing it, because they're paying for all of this. They have to pay for it, but they still are nonetheless paying for it.
Although five banks missed their deadline to release their dataThe UK is leading the world in introducing true Open Banking and it's hardly surprising that such a revolutionary project would hit a few minor snags. The delays, however, are for just a few weeks in the main and only affect a relatively small proportion of customers for the first few weeks.
Given the tight timescale and a challenging build, I've been hugely impressed by how well it has gone so far: we launch on 13 January as planned with a managed roll-out designed to ensure the customer experience is robustly tested before it is open to all.
This article was originally published by WIRED UK
