The less known history of Open Banking in the UK
The UK leads the world in open banking. In 2020, API call volumes in the UK increased to 5.8billion, as opposed to the 66.8million in 2018. According to Mastercard, in the early half of 2021, over 3 million UK consumers and businesses used open banking-enabled products to manage their finances, access credit and make payments. Payments API volume in the UK increased by more than 70% between Q1 2021 vs Q4 2020. Following the success of open banking in the UK, other countries are beginning to adopt open banking and are at different stages of implementation, Australia, Canada, Nigeria.
What most people don’t know is that open banking in the UK didn’t start to promote innovation, solve financial inclusion but as a tool to punish larger banks for their monopolistic behavior.
Open banking in the UK did not start on such an easy note. In November 2014, the Competition and Markets Authority (CMA) decided to review the 2002 SME undertakings; these undertakings were established in 2002 after the CMA’s report on SME banking. The Open Banking Working Group (OBWG) was set up in September 2015 by Her Majesty’s Treasury, to explore data sharing in finance, the group was made up of Open Banking stakeholders – banks, customers, open data groups, and TPPs. OBWG released a framework for sharing bank data and guidelines on implementation, the group also recommended that standardised APIs should be used to share data.
In August 2016, CMA published the findings from the retail banking market investigation and concluded that older and larger banks do not have to compete enough for customers’ business and newer and smaller banks found it difficult to grow. The CMA decided to implement a wide-reaching package of reforms, which included a legal mandate placed on the 9 largest UK banks to make customers’ data available to TPPs via APIs, as earlier proposed by OBWG.
The Open Banking Implementation Entity (OBIE) was created in 2016 by the CMA to deliver APIs, data structures, and security architectures that will enable developers to harness technology, making it easy and safe for individuals and SMEs to share the financial information held by their banks with third parties. OBIE is funded by the CMA9 but works independently, due to this, the entity is able to properly balance the demands of all involved in the implementation of Open Banking without any bias.
The CMA9 (AIB Group UK, Bank of Ireland, Barclays Bank, HSBC Group, Lloyds Banking Group, Nationwide Building Society, NatWest Group, Northern Bank Limited, and Santander UK) were required to adhere to the Open Banking standards developed by the Open Banking Implementation Entity (OBIE) and the deadline for going live was 13th of January 2018. These banks were chosen because their combined customer bases cover 90% of UK consumers and small business accounts. Giving 90% of UK consumers and SMEs the ability to use Open Banking if they wish.
It has been 3 years since implementation (this is 2021), over 300 fintechs have joined the open banking ecosystem, and more than 2.5 million customers and businesses use open banking products. The UK open banking experiment has been an astounding success and has become the benchmark for other countries.
