Note of the APPGs on Alternate Lending and Fintech’s Joint Roundtable on Open Banking, 31 January 2018
Everything you wanted to know about Open Banking but were too afraid to ask: Roundtable with the Trustee of Open Banking.
Chairmen: Julian Knight MP (APPG on Alternate Lending), Adam Afriyie MP (APPG on Fintech)
Parliamentarians in attendance: Lord Flight, Lord Sharkey, Lord Vaux, Baroness Kramer, Baroness Neville-Rolfe.
Guest Speaker: Imran Gulamhuseinwala, Trustee of the Open Banking Implementation Entity.
Julian Knight MP introduced the guest speaker, Imran Gulamhuseinwala OBE.
Imran Gulamhuseinwala gave a summary of the rationale behind the introduction of Open Banking. He emphasised:
- Consumers gaining control over their personal financial data. This is particularly important owing to the rise in the value of data in the past 10-15 years.
- Making it easier for consumers to make decisions. Once consumers aggregate all of their accounts and financial data it will far easier to use comparison websites.
- New data for those with thin credit files. 10-12 million people in the UK have “thin” credit files. Open banking allows them to provide all of their past transactional data as an extension of their credit file.
- Simpler access to financial advice. Rather than sharing certain parts of their data and filling in lots of forms, consumers could simply share all their data with an advisor.
- The increased competition in financial services owing to the compulsion on all big banks to share data when consumers request it.
- Increased efficiency for SMEs. The CBI estimates 25% of SME time is spent on finance and accounting. Greater amounts of this can be automated with Open Banking.
Imran Gulamhuseinwala also noted the security that is built into Open Banking. Firms which utilise data have to be authorised by the FCA; and the fact that there is a directory which provides authorised firms with cryptographic tokens as a secure form of identity. Without these they cannot access people’s data. Furthermore, it is built in such a way that no one will ever have to share their secure usernames or passwords with a 3rd party. In addition, customers get a clear list of who they are sharing their data with and can remove an individual permission at any given time.
He went on to report on the progress of Open Banking since its launch on 13 January:
- It is a two-stage launch; although it was opened to financial companies on 13 January, it will not be open to consumers until March.
- A number of banks have struggled to meet the deadline set by the CMA and have been granted extensions. However, around 85% of the CMA 9 are now ready.
- He is conscious that journalists struggle because it is so complex and thus are tempted to write scare stories about data loss and fraud risks. Similarly, it is unhelpful of certain banks to suggest that it could increase the risks of hacking.
Julian Knight MP asked what sorts of consumers will be using Open Banking first?
- The answer was all sorts; it is unclear where the initial uptake will be. There is a broad range of financial services that OB assists. Mr. Gulamhuseinwala added that consumers who already regularly switch between account providers are likely to make use of it.
Baroness Neville-Rolfe inquired about the risk of hacking and scams to SMEs and suggested there ought to be guidelines on hacking provided.
- Mr. Gulamhuseinwala suggested SMEs were an “unloved” area of finance. He believes they will make greater use of Open Banking than consumers as it will make such a difference to their costs. He concurred on the risks of hacking and that more consideration should have been given when OBIE was set up. All of these warnings will be put onto the OBIE website, the key is to get consumers to go onto it.
Lord Sharkey asked who bears the cost of the OBIE. Will the consumer have to bear any costs?
- Mr. Gulamhuseinwala replied that the CMA9 banks bear the cost as part of the CMA remedies for anti-competitive practices. Under EU rules it has to be free for consumers.
Lord Sharkey asked whether Fintechs would be free to charge customers?
- Yes. Fintechs are free to pursue any business model permissible within the regulatory framework. Mr. Gulamhuseinwala gave various different examples of business models, some which charge and some which rely on advertising or commission for referring customers.
Baroness Kramer expressed her concerns that in cases where the market is opened up to give consumers more options there will be so much new information to take in that people will give up on trying to use it.
- Mr. Gulamhuseinwala explained that it is up to companies who want to use Open Banking to provide the sort of information customers would want.
- Lord Sharkey followed up and expressed his worry that the CMA always advocates comparison websites as means to assist consumers, as they did with utility charges. The outcome for consumers on utilities has not been great.
Adam Afriyie MP raised the prospect of the UK being a world leader in Open Banking. He pointed out it is already the number one place for Fintech and asked for clarification on how far advanced Open Banking is in the UK compared to the rest of the world. Will it encourage foreign investors to invest in the UK?
- Mr. Gulamhuseinwala stated that despite the European Directive there are no consistent standards across the EU. The UK is a world leader vis-a-vis the strength of its standards and the requirement of all banks to share data in whichever way the consumer wants. Other EU countries currently lack equivalent implementation agencies and are envious of the UK’s.
- Mr. Gulamhuseinwala said the “Directory” of authorised firms is crucial. He suggested that the cryptographic tokens used to prove whether a company is authorised are the sort of IP the UK could export, and that the directory could be used for more than financial services.
- Many non-EU countries such as Australia, Singapore and Hong Kong are pursing Open Banking but are behind the UK.
Lord Vaux asked about the risk of new “phishing” scandals where scammers would claim to be an Open Banking Fintech in order to get vulnerable people’s details.
- Mr. Gulamhuseinwala responded that the critical point against this is that APIs, unlike screen scraping previously, will never require someone to disclose their banking username or password to a third party. He acknowledged that this fact needs to be promoted as far and wide as possible.
Julian Knight MP thanked Mr. Gulamhuseinwala for attending and brought the meeting to a close.