Does Open Banking Need a New and More Effective Approach?

Since its launch in the UK, open banking has enjoyed a level of success but still lags behind the level of adoption many expected it to reach by this point in time. 

Advancements in the use of open banking technology appear to have plateaued in the UK and, now, a new approach is required, says James Robson, CEO of business finance platform FundOnion. 

Here, Robson explains what needs to change to make open banking a success once again in the UK.

Open banking has stood out as a shining example of innovation, promising greater accessibility, transparency, and efficiency for those seeking financial services.

Since its inception in 2016, financial services have moved on light years. But for open banking to truly fulfil its potential in the UK, several key areas need to be addressed:

Levelling the playing field

One of the fundamental principles of open banking is to foster competition and empower consumers by providing them with greater choice and access to financial services. However, the fragmented nature of the current landscape, with each bank operating its own unique APIs, presents a significant barrier to achieving this vision.

To truly democratise finance, it’s key that all banks and financial services firms are able to operate on the same open banking footing. This means adopting standardised APIs and protocols, allowing for seamless integration and interoperability between different institutions.

By doing so, consumers will be able to access a wider range of financial products and services from various providers, leading to increased competition, better deals, and ultimately, greater consumer empowerment.

The role of the designated finance platform

Since the 2008 financial crisis, the desire from major high street banks to lend to SMEs has fallen through the floor. This has made it more and more difficult for smaller firms to get access to finance, which is often key to being able to expand, invest and increase productivity. Much more so than for larger firms.

The Designated Finance Platform, whereby high street banks that are unable to lend to small businesses provide referrals through a panel of brokers to other lenders, was set up to facilitate lending to these businesses and better enable growth. It is a prime example of a good idea that has not had the desired effect.

Less than a quarter of businesses rejected by banks for loans are referred and even fewer will be successful.

While some of this can be attributed to problems on the supply side (it is not easy for some alternative finance platforms and smaller lenders to deal with the number of leads a high street bank generates) this problem is being solved rapidly with the use of AI and open banking. This is exactly what we are working on at FundOnion, making sure that small businesses always have somewhere to go to get finance.

Driving a smart data economy

In an increasingly data-driven world, the ability to harness and utilise data effectively is going to be key to future growth. The UK government, along with the Open Banking Implementation Entity (OBIE), has recognised the importance of driving a smart data economy and has laid out a strategy to achieve this goal.

Central to this strategy is the promotion of data interoperability and portability, allowing consumers to control and share their data securely across different platforms and services. This not only empowers individuals with greater control over their financial information but also stimulates innovation and competition within the financial sector.

Furthermore, the UK can learn valuable lessons from other countries that have made significant strides in building a smart data economy. Countries like Singapore, Australia, and Canada have implemented various initiatives towards this.

To keep pace with these developments, the UK must continue to invest in infrastructure, technology, and regulatory frameworks that support data-driven innovation. This includes fostering collaboration between government agencies, regulators, industry stakeholders, and academia to develop and implement policies that promote a thriving smart data economy.

Regaining the lead

Open banking holds tremendous promise for transforming the UK’s financial landscape, but realising this potential requires a concerted effort from all sides.

By ensuring all banks and financial services firms operate on the same open banking footing, restarting and retooling useful initiatives like the Designated Finance Platform, and driving a smart data economy in alignment with global trends, the UK can reposition itself as a leader once more in the digital economy and in open banking.

As we navigate the complexities of the modern financial world, it’s essential to remain committed to the principles of openness, transparency, and innovation. By embracing these principles and working together towards a common vision, we can unlock the full potential of open banking and create a brighter, more inclusive financial future for all.