Government and public authorities’ ability to drive growth in open banking through procurement has been hailed and encouraged during a conference organised by the UK’s fintech trade association.
The UK is widely seen as a leading nation when it comes to developing an open banking ecosystem, spurred by the creation of its Open Banking Implementation Entity (OBIE) in 2016. The country has also blazed a trail in public procurement of open banking technology: first mover was HM Revenue & Customs (HMRC), which in 2021 procured a fintech solution to enable the receipt of payments via open banking; NS&I (National Savings & Investments), a UK state-owned savings bank, followed suit earlier this year; and the Crown Commercial Service (CCS) is in the throes of creating a ‘dynamic purchasing system’ for open banking services for use across central government and the public sector (see final section of this article for an update).
The possibilities for further growth, including government’s multi-faceted role, were discussed in a panel session titled ‘Open Banking: The Future Is Now’ at an event in London’s Canary Wharf financial district organised by Innovate Finance.
Adam Jackson, director of policy at Innovate Finance, spoke of three “ingredients” for the UK’s relative success to date, including government “embracing” open banking through its own use of the technology.
“HMRC [using open banking] is a fantastic example: it’s got people using open banking payments, trusting it [open banking],” Jackson told the audience. “Looking forward [we] want to see more of that: I want to be able to pay my council tax, my car tax [and so on] by open banking, so the more government extends that the better.”
OPEN BANKING: EXPLAINED Open banking is being encouraged by governments worldwide, in different ways and at different speeds, as a means of boosting innovation and competition in financial services. It is a reference to users sharing their data with third-parties (for example, fintech companies). ‘Open’ refers to open application programming interfaces (APIs): software intermediaries that allow two machines to interact. ‘Open APIs’ are APIs made publicly available to software developers. Global Government Fintech’s focus is on open banking’s potential to improve public service delivery.
UK open banking ‘ingredients’
The two further ‘ingredients’ in Jackson’s open banking recipe were the UK’s regulatory approach and API standards.
OBIE was established by the Competition and Markets Authority (CMA), a non-ministerial government department, with the country’s nine largest current account providers (known as the CMA9) required to create and pay for it (in UK open banking circles this is referred to as the ‘CMA order’). However, a new entity (currently being referred to as the ‘future entity’) is to be created following CMA recommendations published more than 18 months ago. OBIE is now being referred to as Open Banking Limited (OBL).
“Regulations [for open banking in the UK] are comprehensive,” said Jackson. “Specifically, the reason why we’ve seen payments really take off is [that] the CMA went beyond [the] PSD [the 27-member European Union’s Payment Services Directive], and that’s why we’ve seen more payments innovation here than in the rest of the EU. As we go forward, we still need to see those active regulators ‘standing over’ the players to make sure we keep progressing.”
He described OBIE/OBL-created API standards as “comprehensive”, saying that they have “driven open data-sharing.”
There is potential, he added, to “grow the [UK] economy” by “exporting” the UK’s standards. “We’ve led the way in the UK, can we now share those [standards] and encourage interoperability in areas like payments with other countries?,” he asked, rhetorically.
Global Government Fintech’s Open Banking / Open Finance topic section
‘We need to expand’
OBL chair and trustee Marion King provided an update on open banking user numbers and her thoughts on hot topics in UK open banking, including the Joint Regulatory Oversight Committee (JROC). JROC was announced in March 2022 to oversee the creation of the ‘future entity’
In February 2023, OBL announced seven million ‘regular’ users of open banking in the UK, she said. In August, that figure rose to seven and three-quarter million. “That’s 10 per cent [growth] in six months, and the February figure was more than 100 per cent of what it was the year before. So, we’re starting to see real growth,” she said.
The UK registered 11.4 million payments made via open banking during July 2023, a figure that rose to 11.75 million in August 2023. Variable recurring payments (VRPs – repeat payments of varying amounts) are also growing.
“We have built the foundation, and we’ve done that largely off the back of PSD2 [the EU’s Payment Services Directive 2 – in force from January 2018], and of course, the CMA order,” King summarised. “We now need to expand, we now need to ensure that we ‘level up’ [APIs] in terms of the quality, the access and the scope.”
“We need to go beyond the CMA9, we need to get the JROC plan delivered, we need to get the new entity set up, and we need to manage the trust framework and central ecosystem as effectively as we do today but much broader – and we need to do it at pace,” she continued, also referencing the importance of the UK’s Data Protection and Digital Information (DPDI) Bill.
FURTHER READING One small website button, one giant leap for payments to government? – an article (6 April 2021) on HMRC’s launch of its open banking-enabled ‘pay by bank account’ option for people filing online self-assessment tax returns
International interest – and competition
The funding model for the ‘future entity’ remains to be decided.
“You cannot have a central infrastructure unless it’s funded, it cannot be sustainable unless it’s funded,” King said. “Those who use [it] need to pay but they need to do it in an equitable, fair and balanced way, so that innovators – fintech [companies] – can build their business models with clarity, knowing what they’re dealing with; and the larger institutions – the bigger banks – get a sense of fairness, and they’re not funding everything, which they [i.e. the CMA9] are currently. It’s sounds very easy – [but it’s] really difficult to do.”
It is six months since the UK government launched the Smart Data Council, which aims to facilitate the replication of the relative success of open banking in other sectors. OBIE/OBL and Innovate Finance are among 18 organisations represented alongside various government departments, including HM Treasury.
“I was at the [UK] Conservative party conference on Tuesday and the vision from the minister was [that] we’ll have a central standards body – that won’t be OBL, that will be a central standards body that sets the standards for other implementation entities – and their vision is communications, energy and then other sectors as we ‘move through’: so, one set of standards for interoperability,” King said. “The power of bank data, financial data, coupled with the power of [data from] another sector blows your mind in terms of what’s possible to improve services to consumers and businesses and the economy.”
“We shouldn’t underestimate the pace of change in the rest of the world,” she continued. “It’s [open banking] in dozens of jurisdictions now across the globe, moving quickly in different ways. We [the UK] are stronger in terms of volumes and regulatory framework because of PSD2 and [the] CMA order. We are being approached by other countries: ‘can we share your directory?’ [a reference to the UK’s Open Banking Directory – the UK’s core open banking infrastructure]?; ‘can we understand what you’re doing?’. ‘No’ is the answer right now. We cannot do those things until we have bedded down, we have a central entity and we have a market that works effectively for all.”
RELATED ARTICLE HMRC completes open banking rollout and sets out new priorities – a news story (15 February 2023) on HMRC’s pioneering use of open banking (includes the department’s head of payments, Nick Down, describing “increasing interest” across UK government in using open banking)
‘Not at “inflection point” quite yet’
The discussion, which was part of a one-day event (5 October) titled ‘Fintech as a force for good’, included two further private-sector panellists: James Hickman, chief operating officer at Ecospend – the fintech company being used by both HMRC and NS&I for its open banking technology – and Robert Kerrigan, general counsel at payments technology company TrueLayer.
Hickman mentioned the HMRC and NS&I examples of Ecospend’s technology being used in the public sector, as well as its use by investment platform Hargreaves Lansdown.
“We’re not at the ‘inflection point’ quite yet – probably not for another 12 to 18 months – which is when we hit full of ubiquity for this,” Hickman said, envisaging open banking reaching what he described as future “mass adoption”.
Looking to future challenges and possibilities for open banking, Kerrigan referenced the importance of JROC’s work, as well as the DPDI bill. “Find a model [for funding the future entity] that works for everyone commercially, so you can take it forward so it doesn’t feel like a compliance exercise for banks anymore,” he suggested.
In respect of the possibilities of digital data sharing beyond open banking – as exemplified by the creation of the Smart Data Council – Jackson referenced ‘Project Perseus’. This is a recently launched multi-organisation and multi-sector initiative spearheaded by Bankers for Net Zero and Icebreaker One (the latter is also part of the Smart Data Council) that aims to take the ‘open data’ principles that underlie open banking and apply them to sustainability reporting.
RELATED ARTICLE UK government backs open banking with £100m-a-year eight-year supplier plan – our article (14 June 2023) on the Crown Commercial Service (CCS)’s plans to create an ‘Open Banking Dynamic Purchasing System (Data, Digital Payments and Confirmation of Payee Services) – see below for an update on this
CCS ‘Dynamic Purchasing System’ plan
Global Government Fintech reported four months ago that UK authorities are in the throes of creating a ‘dynamic purchasing system’ for open banking services for use across central government and the public sector – a move with the potential to translate into a substantial shot-in-the-arm for companies providing open banking technology.
The plans were revealed in a prior information notice (PIN) – carrying a total value of £800m (about $1bn) over eight years – published by the Crown Commercial Service (CCS), an executive agency sponsored by the Cabinet Office, entitled ‘Open Banking Dynamic Purchasing System (Data, Digital Payments and Confirmation of Payee Services)’.
Frameworks (or agreements) overseen by CCS help public- and third-sector buyers to procure goods and services from a list of pre-approved suppliers, with agreed terms and conditions and legal protections. Dynamic purchasing systems (DPS) are one of four types of agreements available through CCS. A DPS allows suppliers to join at any time, ‘increasing competition and choice and meaning that it is open to new businesses, innovations and emerging technologies throughout the life of the DPS’.
The first such CCS arrangement for open banking services will ‘provide a vehicle’ for central government and the public sector to source open banking services, including digital payment services, account information services and confirmation of payee (CoP) services.
The PIN, which referred to the ‘ongoing growth and development of the open banking market’, specified a budget of £100m per year for all financial years between 2023/2024 and 2030/2031.
RELATED ARTICLE UK Government Digital Service to explore adding open banking to Gov.UK Pay – a news story (14 August 2023) based on a blog-post by Amanda Dahl, deputy director of digital service platforms in the Government Digital Service (GDS), which is part of the Cabinet Office
CCS revises DPS timetable
The PIN stated that CCS ‘intend[ed] to launch for supplier onboarding’ from late-July with the dynamic purchasing system ‘anticipated to go live for use in the autumn’. Contract start and end dates, respectively, were specified as 31 August 2023 and 31 August 2031.
Timings have, however, slipped. CCS has told Global Government Fintech that the date of the DPS’s release has been pushed back from ‘indicative’ timings (in the PIN) because of ‘additional necessary work to ensure the platform delivers the established requirements’.
Global Government Fintech understands that the contract notice with full details of the DPS is now in line for issuance around 23 November. This would also be the point when aspirant suppliers can register. ‘Customers’ (that is to say public- and third-sector buyers) would then be able to access it from the end of December 2023.
CCS has held a ‘supplier event’ with companies that responded to the PIN, during which team members shared their vision and strategy for the DPS. Attendees were informed of the revised timescales during this event.
Matthew Hooper, who is head of category for revenue, recoveries, analytics and data at CCS, is speaking on the topic of ‘Creating digital payments and data opportunities for the public sector’ at an ‘Open Banking Expo’ event in London this week (18-19 October).
*** Fintechs Canada (an industry association that operated as Paytechs of Canada until last year) has launched a campaign called ‘Choose More’, urging government action on open banking (as well as payments modernisation). Its campaign website contains a ‘myth vs fact’ section stating that ‘open banking is not yet available in Canada despite it being available in other countries like Australia and the UK’.