Open Banking is a secure way for you to use financial products and services from regulated apps and

websites.

In August 2016, the United Kingdom Competition and Markets Authority (CMA) issued a ruling that required the nine-biggest UK
banks – HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske Bank, Lloyds and Nationwide – to allow
licensed startups direct access to their data down to the level of transaction-account transactions.

he direction came into force on January 13, 2018, and using standards and systems created by Open Banking Limited, a non-profit
created especially for the task. However, enforcement rests with the Competition & Markets Authority. Protection for consumers is
the responsibility of the Financial Conduct Authority (FCA) (for account information and payment initiation services, under the PSD2
directive) or the Information Commissioner's Office (for data).[7]
The CMA direction only applies to the nine largest banks and works alongside the broader PSD2 rules that apply to all payment
account providers.
The UK’s Open Banking initiative is much more liberal to the regulatory subjects, demanding to be implemented by just nine large
providers in the UK - so-called “The Competition & Markets Authority Nine.” But since this initiative is a gateway towards the more
innovative approach in finances, many forward-thinking banks were also eager to incorporate the same concept into their services.
However, the EU’s PSD2 is much more demanding in that sense. The initiative requires all the financial players in the union to apply
the same standards, notwithstanding their scope of operations nor anything else. 
n February 2019, the Open Banking Implementation Entity (OBIE) published operational guidelines to provide clarity and
recommendations to financial institutions – Account Servicing Payment Service Provider (ASPSPs) – on the regulatory requirements
for a dedicated interface, as set out in PSD2, RTS, EBA Guidelines and FCA Approach documents. Here’s what followed and what
some members of the CMA9 have to say about their experience of Open Banking in 2019.

In October 2015, the European Parliament implemented the Revised Payment Service
Directive, or PSD2. This move enables new types of banking services that use innovative online
and mobile payments. By August 2016, the United Kingdom Competition and Markets Authority
(CMA) asked nine of the biggest banks (Barclays, RBS, HSBC, Santander, Bank of Ireland,
Allied Irish Bank, Danske Bank, Lloyds, and Nationwide) to allow licensed third-parties direct
access to their data.

“By providing access to this data to third parties, Open Banking levels the playing field between
traditional incumbent financial services providers and new disruptors. Incumbents are at risk of falling
behind more technology enabled peers as well as new market entrants, such as FinTechs. They are
challenged by the potential entry into financial services by prominent players in other industries, in
particular technology giants who may now be encouraged to innovate in areas like payments”1

“The industry faces a number of challenges. These include the fact that banking still suffers from a poor
reputation and relatively low levels of trust2 when compared to other industries. Many of the
incumbents are still struggling to modernise their IT platforms and to embrace digital in a way that
fundamentally changes the cost base and the way customers are served. There are also growing service
gaps in the industry, with 16m people trapped in the finance advice gap3 . In the face of these
challenges, Open Banking provides an opportunity to open up the banking industry, ignite innovation to
tackle some of these issues and radically enhance the public’s interaction and experience with the
financial services industry”

Large banks are treating Open Banking as an important programme, both for regulatory compliance and
strategic reasons. Executives we interviewed discussed deploying offensive and defensive strategies.
Offensive:

1
https://retailbankinginnovation.fintecnet.com/uploads/2/4/3/8/24384857/the_future_of_banking_is_open.pdf
Open Banking is seen as a key factor within banks’ digital strategies. Banks appreciate that they have
strong brands and are trusted to look after customers’ money, identities and data. They already have
large established customer bases, and see Open Banking as a way of enriching the functionality and
experiences that they can offer. This would typically be through better use of analytics and
personalisation, combining data already held by the bank with data gathered from other institutions and
sources. In this way, banks hope to provide more relevant products and services to their existing
customers, and to increase their market share by attracting new customers. Banks who recognise that
they lack the agility, speed or innovation of competing startups, can complement their offerings through
partnerships with FinTechs who can add value to the bank’s customers as part of a controlled and
trusted ecosystem.

Defensive:
https://retailbankinginnovation.fintecnet.com/uploads/2/4/3/8/24384857/the_future_of_banking_is_o
pen.pdf PG 18

Most large banks recognise that Open Banking may lead to a weakening of their relationships with
customers. It is highly plausible that customers will increasingly engage directly with well-designed 3rd
party applications and use this as the interface to an array of banking products and services from
multiple providers. Taken to an extreme, banks may ultimately become undifferentiated utilities with
lower returns. Banks are reacting by seeking to enhance the customer centricity of their products and
platforms and retain relevance to customers. If they are able to keep pace with the innovation and
usability of new competitor offerings, most customers will likely continue to use banks for the majority
of their financial services. Banks are also concerned that customers may be exposed to a range of
threats associated with security and data loss. Even if an incident is not caused by the bank, there is a
likelihood that they will suffer collateral damage to their reputation, and may be expected to help
remedy the issue which will incur cost. Many banks therefore feel it important that they help educate
customers about the risks of data sharing; ensure that the APIs are used to increase security and safety,
not decrease it. They also plan to rigorously validate that firms are appropriately authorised to access
their APIs.
Mid-sized banks and building societies

Mid-sized banks and building societies are generally waiting to see how the CMA9 respond, what new
competitors emerge and how customers respond to new Open Banking offerings. While they have
similar concerns to the big institutions about the risk of disruption and disintermediation, they are often
constrained in their ability to treat this as a top strategic priority. They do not have the same pressing
regulatory imperative to re-architect their systems, and do not have the budget to invest in adventurous
Open Banking propositions. Furthermore these organisations appreciate that they are typically not as
nimble as smaller technology-centric firms, and are concerned by a risk of falling behind. They have
therefore starting developing propositions and partnerships to offer the functionality which will be seen
as hygiene factors in future. Although the mid-sized banks and building societies see the potential to use
Open Banking to leapfrog their competition (for example by rapidly extending their geographic reach or
product offering) they are not yet willing to take significant risk to pursue this.

Specialist lenders Perhaps due to the scope of the first wave of Open Banking regulation that
emphasises current accounts, specialist lenders have been slower to respond to Open Banking.
Progressive companies do however recognise that better sharing of data could result in a rethink of their
distribution models. Better integration with marketplaces, aggregators and comparison sites means
being able to increase the speed with which product variants can be introduced and presented to a
wide audience. The ability to analyse rich data used for pricing specialised risks could transform the way
they operate. It is expected that specialist lenders will pay more attention as the sharing of banking data
matures and expands, and in particular if an array of new lending propositions is introduced by FinTechs.

Consumer’s Reac tion

As per a PWC research, excluding 0.2% respondents, a majority od the

“The banking industry as a whole will likely share in a larger economic pie, as new opportunities for
value creation emerge quicker than old sources of value erode. • The winners will be those banks that
embrace Open Banking and modernize their business model, opening it up to third parties and accepting
that the walled garden through which banks enjoyed a privileged position in the economy is a thing of
the past.”

ncumbent banks will need to act decisively to secure their share of the new value being created, much
like the entrepreneurial traders of the 17th-century open Dutch economy established and then
dominated profitable trade routes around the world. • Incumbent banks that focus on simply harvesting
2

https://retailbankinginnovation.fintecnet.com/uploads/2/4/3/8/24384857/the_future_of_banking_is_open.pdfpg
32
their current business franchise should expect rapidly increasing erosion, much like that in the 17th-
century closed Japanese economy.

ust like other digital businesses, banks will also need to learn the importance of being “discoverable”
through the APIs they publish.

By 2020, European banks that exploit Open Banking to become digital leaders may generate up to: of
lending 20%revenue pool of current account 21% revenue pool 17% of payments of retail investments
12%.3

In exposing APIs to third-party developers, banks will be forced to more rapidly innovate to meet the
expectations of this demanding, real-time community.

Even before the official launch of PSD2 in Europe, we have already seen HSBC in the UK try to capture
first-mover advantage with its account aggregation service.

3
No 5