We share the FCA’s vision for open finance as one in which consumers will have better access to, control over and transparency of their data, to engage with their finances in a context that supports financial decision making and delivers better consumer outcomes.
The full potential of open-banking and related propositions will only begin to be maximised when coverage goes beyond PSD2. The potential benefits to consumers of seeing all their financial world in one place are multiplicative, not additive, and maximising these benefits will help to level up financial outcomes for consumers, and rebuild trust in financial services.
Q1: What action can we take to help ensure the potential of open banking is maximised, for instance to support the development of new open banking services?
Regulators play a vital role in ensuring all market players act in the best interests of consumers. Mandating open standards, and ensuring compliance with these standards is a necessary, though not sufficient condition for the introduction of open finance.
The ecosystem needs to be encouraged to adopt best in class approaches that meet customer expectations, with appropriate and proportionate friction. For example, some banks have been unable to put in consent journeys that meet customer expectations. While migrating customers from screen-scraping to open-banking, some customers have asked to move back to screen-scraping as it is an easier consumer experience, despite having to enter their login details. Allowing longer consent periods (i.e. beyond 90 days) for up to at least a year and making it possible for consumers to re-authorise connections for all accounts in one go, once connected, would support the migration to open banking. Currently, variable recurring payments require consent journeys antithetical to more secure, more digital, and more customer-friendly options.
Q2: We are interested in your views on what open banking teaches us about the potential development of open finance.
Open banking is the first step towards consumers having a holistic view of their financial wellbeing. Open banking has shown there is latent, as yet underserved, appetite for consumers to access, and see their financial world in a way that meets their needs, irrespective of whether the initial point of access is via their employer, bank or pension provider. Each one of these points of access can be an effective conduit to self-service.
Simultaneously, open banking illustrates that the customer need is not for open banking or open finance, rather the services, and beneficial outcomes that it unlocks. For example, early visibility of pensions and later life savings in the context of wider personal finance can stimulate engagement, raise capability and support sound decision-making to achieve long term financial wellbeing. We have found the potential to aggregate has a catalytic effect, with consumers striving to build a full picture of their financial world.
When the consumer is in control of their data and who they share it with, this can build trust, drive engagement and empower activity. The principle of informed consent underpins an ethical, equitable and transparent value exchange.
Open banking has already introduced a profound level of innovation to the market, raising expectations of consumer-centricity and service design. As a regulated AISP and PISP, we can see clear opportunities for innovation in an open finance landscape, with greater transparency on price, performance and choice all supporting greater competition for the benefit of consumers.
Q3: Do you agree with our definition of open finance?
Yes, and some measure of consumer adoption would make the definition more tangible, for example, the number of consumers aggregating accounts from two or more providers.
Q4: Do you agree with our assessment of the potential benefits of open finance? Are there others?
In the Call for Input, the FCA listed a number of potential benefits for consumers and businesses in relation to financial inclusion; competition; and financial capability. We would highlight the opportunity to rebuild trust in financial services through enhanced transparency, and better consumer outcomes.
Further benefits, we have identified include:
Longer term financial planning with monthly savings sweeping into ISAs and pensions.
Holistic lifestyle planning to incorporate career breaks, part-time work, and other heterogenous use cases, not just snapshots pre/post 55 years of age.
Removing the cost of payments for individuals and SMEs.
Enabling and facilitating alternative financial lifestyles, beyond auto-switching to gauging the appropriateness of the switch, which may be a financial best-fit, rather than the cheapest option. For example, affordability assessments for investment, driven by accurate assessment of financial resilience.
Even elemental insights are a powerful nudge to overcome inertia with automation, for example, surfacing better insurance or credit options “Your insurance is up for renewal would you like to consider other providers”.
Consumers ability to capture the value of their data, for example, switching energy provider, and receiving the cash back from the commission.
Using open finance, and artificial intelligence we can spot patterns of behaviour. The customisation, context and timeliness of nudges tackle many of the observed behavioural barriers to financial engagement.
There are further economic efficiencies, available to firms and their customers, from ‘better’ and ‘faster’ journeys. For example, the reduced time taken to complete a fact find, and reduced time to make mortgage decisions.
Financial insights provide an opportunity to realise a ‘better self’ in financial capability and agency. In addition to the tangible benefits of enhanced resilience to financial shocks, there are intangible benefits, as the relationship between money and mental health is increasingly well-documented. We anticipate benefits of integrating non-financial data, such as using GPS data, “drive two miles further to get cheaper fuel”.
The extent of potential benefits from open data, open finance and consumer empowerment are exponential.
Q5: What can we do to maximise these benefits (given the considerations set out in paragraphs 3.12 to 3.17)?
Many of the opportunities set out above work best when a TPP can look across the full range of financial products available, rather than limited to a sector specific view. There are a number of complementary measures that would support the maximisation of these benefits including:
Digital identity verification is a close complement to open finance, and we welcome closer collaboration between FCA and the Information Commissioner’s Office.
Coordination across regulatory bodies and other industry bodies. For example, NESTA challenges and FCA sandbox are helpful mechanisms for innovation.
It is critical that it is as easy to withdraw consent as to give it, and when withdrawn safeguard the erasure of the consumer’s data.
Q6: Is there a natural sequence by which open finance would or should develop by sector?
It would be possible for everything to be mandated at once and allow the market to find the opportunities. The PSD2 banks have accounts outside the current legislation, so could swiftly level up their offering across their full suite of products.
If a phased approach is adopted, it may be easier to implement read-only access in the first instance, followed by execution later. Enabling read-only of all accounts via API, securely, and without latency would begin to raise consumer awareness and confident, delivering accurate information for debt guidance, loan under-writing and mortgages (for example) while mitigating some perceived risks.
Q7: Do you agree with our assessment of the potential risks arising from open finance? Are there others?
The risks outlined in the Call for Input exist in the current environment. Open finance will improve matters by giving consumers greater visibility and control. For example, Moneyhub has detected fraud for a number of our customers at small transaction values that are not detected by credit card systems. We have received other feedback that credit data-sharing is currently opaque. Transparency of what data is shared and with whom through an informed consent mechanism can enhance consumers capability to improve their credit profile.
Commercial APIs can play a role as long as providers are mandated to deal with TPPs so that new entrants are not disadvantaged, or competition stymied.
Exclusion can actively be addressed for third party access and vulnerable customers. The introduction of proportionate and appropriate friction is key for these customers. For example, friction could be flexible and extended for use cases such as gambling or pay-day loans. Currently in open banking, the friction in customer journeys is consistent regardless of purpose, £1 transferred between a user’s own accounts is the same flow as £10k to a stranger, which can numb awareness of consent.
For those cautious about credential sharing and security, there is a clear opportunity to distinguish between read-only and execution access with proportionate levels of friction. For example, thresholds for decision-making need to be high where there are the risks of irrecoverable negative outcomes, such as pension consolidation. These risks exist outside of digital mediums; open finance service can design in safe-guards.
Q8: Do you consider that the current regulatory framework would be adequate to capture these risks?
Open finance touches a wide range of regulatory entities. Strong, proportionate, hurdles are important for industry and consumers, to avoid the risk of one business damaging the ecosystem as it emerges. The liability framework needs to be commensurate with any risk transference.
Currently, there is little sanction for non-compliance. There needs to be a more robust mechanism, such as a remedies list, so when in breach there are sanctions, not necessarily financial), and the breach stays on record. These mechanisms underpin investor confidence in the fintech sector. Investors rely on the law being upheld, otherwise start-ups are effectively crowded out, and flows of investment capital will be diminished.
The ICO needs to be sufficiently resourced, and their powers sufficiently comprehensive to ensure a coherent, consistent and cohesive smart data strategy between the regulatory entities.
Q9: What barriers do established firms face in providing access to customer data and what barriers do TPPs face in accessing that data today?
Currently, there is a lack of adherence to PSD2 legislation, for example, user journeys via TPP are not the same as those used in their own online journeys. For TPPs this raises more customer support queries). The TPP has to understand the flow is different to the proprietary flow, and how, and explain to consumers why the TPP initiated flow is different. This creates cognitive and real barriers and raises operational costs.
As a TPP we experience poor response times to AISP tickets, and poor information from established players’ customer support. Communications are worse than for other channels, often, there are no communications around outages for joint customers. This superficial adherence to the requirements is exacerbated by lack of penalties when the experience may be intentionally sub-optimal. Those that are not compliant need to be held to account.
Currently data is imperfect which adversely affects consumers whether in digital or offline environments. However the transparency and cost-efficiencies of technological solutions, such as open finance, shine a light on data inadequacies, There are parallels with the Pension Dashboard project, where the paucity of data quality within a long tail of small providers needs to be addressed irrespective of the Dashboard project; Dashboard project increases the imperative to address the issue. Open pensions are a critical component of open finance, where there is significant potential to address an acknowledged risk of inadequate retirement incomes.
Q10: Do you think the right incentives exist for open finance to develop, or would FCA rules, or any other changes be necessary?
We experience clear consumer demand, and eagerness from the non-banking sector to progress open finance, however there is currently a bias towards the status quo. We appreciate FCA support, building on the experience of open banking, to legislate and empower an independent implementation entity. As referenced earlier, complementary mechanisms can further stimulate innovation, such as the NESTA challenge, and FCA sandbox environment.
Q11: Do you have views on the feasibility of different types of firms opening up access to customer data to third parties?
We are concerned that many incumbents currently lack the culture, processes and technological capability to open up access to customer data. We have experienced instances where, under GDPR, we have asked for our own data in machine-readable format and some of the larger firms in the pensions and investment have been unable to support this request. Some responses leave the impression that in some quarters the GDPR legislation is not taken seriously.
We accept that there is a cost for smaller firms, though open industry standards and centralised offerings, such as the Pension Dashboard will mean costs are more economical.
Q12: What costs would be involved in doing so? We are interested in views on the desirability and feasibility of developing APIs?
Open standard APIs are a best in class approach to move data in a more secure way, end to end. APIs are both highly desirable and very feasible for consumers to easily consent to share their data, in a safe, secure, and accessible format. Well designed APIs allow an individual to share specific fine-grained data elements for specific time durations, and to easily revoke such access if required.
Currently, data is inherently being stored and shared incorrectly on legacy technologies which do not have sufficient security. We believe the cost is straightforward as most organisations already present data either through their own websites, or in printed form: what is required is a security layer to allow third party access.
Our experience with banks is that while there was a long period of negotiation and feasibility for many, ultimately swift execution in three months delivered open banking. The lessons learned from open banking should be reflected in timelines for open finance.
For incumbents, not only is there a lack of commercial incentive, there is a greater perceived risk of impact to their current business model, particularly where they have large assets under management from a disengaged base of consumers.
Q13: Do you have views on how the market may develop if some but not all firms opened up to third party access?
One way to address commercial justification is facilitating partial coverage to prove consumer demand. Open banking began with the CMA9, and we still saw significant uptake. Partial coverage will encourage the long tail, raise the bar of consumer expectation and increase consumer demand. The laggards, and their customers, lose by exception.
Until holistic coverage is achieved, partial coverage does offer significant benefits for a range of use cases. There are some use cases, where this could pose a risk, for example, financial planning, which can be mitigated through other ways of consolidating data as an interim measure.
Q14: What functions and common standards are needed to support open finance? How should they be delivered?
As in open banking, a common standard API with core mandatory fields, and optional additional fields that are part of the standard is required, delivered by an implementation entity, and a central directory service, arbitration process, and penalties for non-compliance.
User journey and consent flows, including centralised consent mechanisms, need to be prioritised, not left to institutions to define. We support the Bank of England’s call for user-friendly customer authentication, including different levels of security to reflect the sensitivity of the data being shared. A digital identity system (ref. 1 below) would further aid implementation and reduce customer friction. For example, by enabling AML with a single institution.
Q15: What role could BEIS’ Smart Data Function best play to ensure interoperability and cohesion?
We echo the Bank of England’s response to the BEIS Smart Data Consultation that, “a fully-interoperable API-based data sharing platform across the whole economy could empower consumers to harness the full value of their data. And with the right governance and permissions, it would put consumers in control of how and when they use their data. The Bank agrees with the idea of a cross-sector Smart Data Function and suggests that, given it will have responsibility for overseeing the safe and effective movement of consumer data, it sits within or works closely with the Information Commissioner’s Office.” (ref. 2 below).
Q16: To what extent should the standards and infrastructure developed by the OBIE be leveraged to support open finance?
The OBIE played a critical role. We would recommend the OBIE as a framework to expedite roll-out: the existing directory and standards should be leveraged, with emphasis on the benefits to industry and consumers.
Mandatory standards for the large incumbents created a level playing field and streamlined delivery. Where providers have developed their own proprietary API, the connection process has been much more complex and taken longer. Customer experience guidelines in open banking have been instrumental in building confidence.
More visibility on the volume and resolution of issues through the OBIE would be welcomed, and the use of penalties for non-compliance.
Q17: Do you agree that GDPR alone may not provide a sufficient framework for the development of open finance?
Based on the central principle that the consumer owns their data under GDPR with the rights to data portability in an accessible, machine-readable format provides a strong foundation for open finance. Open banking and GDPR are effective complements.Further legislation will be required to ensure a coherent, consumer-centric approach.
Q19: What are the specific ethical issues we need to consider as part of open finance?
Consumers need a clear resolution mechanism if their data does not look right.
Fees and charges should be mandatory fields to bolster transparency and address the lessons learned from the Retail Distribution Review. Transparency around commission levels, and who is receiving commissions would shed light on data and privacy trade-offs. For example, in the absence of this transparency, a TPP marketplace could offer a range of loans, which may be commercially advantageous to the TPP, not necessarily the end-user. The risk of this could be addressed by the commission being transparent.
Q21: How should these set of principles be developed? Do you have views on the role the FCA should play?
FCA has a lead role to play convening the relevant regulators. We would welcome close collaboration between the FCA, ICO and BEIS on digital identity and smart data.
Q22: Do you have views on whether any elements of the FCA’s regulatory framework may constrain the development of open finance?
Please provide specific examples Many of the established players have significant resources devoted to lobbying and engagement with the regulators and industry panels, which give them a disproportionate voice. Trade bodies, such as fData and EMA help redress the balance in this regard, and they have both been instrumental in representing the challenges that newer entrants and TTP face.
Version: 17/03/20 | V1.0
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