Open banking as a concept was brought to life in the UK when the Competition and Markets Authority (CMA) published its report 'Making Banks Work harder for you' in August 2016.

At the heart of this report were 3 key objectives:

  • Accelerate technological change.
  • Improve service quality measurement.
  • Improve customer service interactions.

To reinforce the delivery of these changes the CMA also required that banks enable their customers to switch their accounts easily to take advantage of cheaper overdrafts and charges or better deposit rates.

So here we are nearly five years later – has the CMA achieved these objectives and are small business and personal banking customers more satisfied?

Accelerated change?

On the surface the answer to this would appear to be yes – all of the major financial providers have implemented application programming interfaces (APIs) to open up their platforms and many 'fintech' aggregators have entered the banking services marketplace spilling a lot of ink on column inches in the trade press and marketing supplements in the weekend papers.

Is it being used?

Detailed statistics on real world utilisation are however somewhat nebulous – the UK Open Banking Implementation Entity (OBIE) claimed that in September 2020 3% of individuals in the UK were using an open banking enabled capability but it could not distinguish whether these were private households or the self-employed, nor could it say that these were new service adoptions or rewrites of existing capabilities.

The key question that is not being answered is how much 'legacy' banking particularly in the small business and Not for Profit sector has been 'upgraded' to utilise these new capabilities. There are still many 'basic' bank accounts supporting sound, active businesses across the UK that just have a company chequebook and paying in book – and not even a debit card in many cases, moreover and perhaps most importantly no one has to remember a pin or password to perform a transaction.

We must always remember that service migration is the true measure of change not service provision.

Improved quality measurement?

IPSOS-Mori and BVA-BDRC now run regular surveys on behalf of the CMA that provide snapshots of customer satisfaction for a range of banking services.

This has produced more frequent measurement and more data points but the websites and PDFs produced by both agencies do not highlight trends or produce any second order analytics such as satisfaction volatility. 

It can also be argued that there is still only a very small amount of 'new' satisfaction data and the effects of the pandemic have completely distorted retail banking activities in the UK for the past year making any meaningful analysis very difficult.

Improved customer interactions?

The CMA initiative and its broader EU Payment Services Directive (PSD) 2 initiative deliberately avoided trying to create a single standardised functional API layer that defines what open banking services are – instead more than 30 fintech aggregators across the UK and Europe are building their own versions of what this might be. In the short to medium term this Darwinian competitive approach is probably best to determine the most successful implementations but longer term as with computing platform API’s it will inevitably shrink to a small number of major standards, arguably fewer than 10.

Then there are the provider API’s from the major institutions – your author was recently asked to comment on a sample from a major UK high street bank which seemed to be little more than an automated extract from a customer relationship management system that had not been reviewed by an experienced business analyst for meaningful content.  

So the jury is still out on this – as noted previously there is no substantive data that shows the number of users switching to or moving between aggregation platforms for reasons of functionality or service quality.

The big tech elephants?

Ironically, while the open banking initiative has tried to create and foster service diversity much of it is gated by the two mobile device platforms – Apple’s IOS and Google’s Android – not only do these two behemoths control which applications are delivered via their respective app stores to users eyeballs and fingertips, but they also have their own payments platforms which have been adopted globally.

More secure and trustworthy?

While there are many proven technical security mechanisms utilised by open banking services, the reality is that multiple layers between aggregators and providers can only result in a greater attack surface and the opportunity for 'Man in the Middle' subterfuge. After the recent SolarWinds and Sequoia Capital cyber incidents, more threat management and security review work will be needed by all parties to demonstrate that the current approach is sound and sustainably secure. 

We must not forget that as well as providing innovative services to legitimate customers aggregation platforms can also facilitate 'placing', 'layering' and 'distribution' i.e. the core features of money laundering.

Pandemic impact?

While the pandemic-induced lockdowns have resulted in a large shift to online consumption and cashless payments there is no evidence that small businesses are using new open banking services to mitigate operational disruption. We should note that the new capabilities offered by providers are of little value to furloughed workers or sadly those made redundant let alone mitigating the paper trail of tidying up the financial affairs of the over 120,000 killed in Covid’s wake in the UK.

The continuing spectre of negative interest rates and a post-pandemic economic depression will almost certainly dissuade any growth in account switching for small businesses that the CMA hoped for. Unlike energy supply contracts there is no futures market for banking tariffs to act as a catalyst for change.

Closing thoughts

Open banking is still at the 'build it and they will come' stage with very little concrete data on utilisation, migration and sector penetration. As with much of the hype around fintech innovation, the focus remains on possibility not proven need. Perhaps the most notable absentee amongst the feature set of the current published API sets is addressing corporate actions in the small business sector which from the author’s own experience lies at the heart of the poor satisfaction statistics noted previously.

Because of the Darwinian selection process that the API aggregators are being put through there will ultimately be very few winners as we have learned throughout the history of computing platform API consumption. If this ends up being a small probably single digit number will we really have made the banking sector more ‘diverse’ as a result of this initiative? The simple truth is likely to be no.