Open banking creates super-fast, automated data connections and brings significant possibilities for improving public service delivery, but adoption has so far been slow. Ian Hall investigates the opportunities and obstacles facing governments as they explore its uses
Open banking is being encouraged and explored – albeit cautiously – by governments worldwide. The technology behind open banking, application programming interfaces (APIs), enables bank account holders to share information with third parties and is designed to boost competition and promote transparency and innovation in financial services. And, though examples of it being used in practice are limited for now, it could have significant potential in public service delivery.
Open banking is a fledgling initiative but as awareness of its potential begins to grow so too does public sector interest, with government departments and agencies looking to plug into the open banking ecosystem to simplify processes, save money and improve citizen services.
So what are open banking’s most promising applications in government? And is there a need to exercise caution?
The UK leads the way when it comes to open banking. Customers of some UK banks have been able to grant third parties access to their banking data since January 2018 – since then one million people have made use of the technology.
Now, other countries are beginning to follow suit. After a six-month pause over security and privacy concerns, open banking became a reality this month in Australia, which has incorporated open banking into the country’s Consumer Data Right law. Canada is toying with the idea of introducing open banking but is undertaking a series of government reviews. And Singapore is said to be considering the use of APIs to provide better services for its citizens and businesses.
The countries looking to embrace open banking may well look to the UK for inspiration. It has an open banking champion, the Open Banking Implementation Entity (OBIE) – a company set up by non-ministerial government department, the Competition and Markets Authority (CMA) in 2016, and funded by the UK’s nine largest banks and building societies. It also has what OBIE trustee Imran Gulamhuseinwala recently described as the government’s “third-party innovative fintech in open banking” in the form of state-owned savings bank, NS&I.
Dax Harkins, director of NS&I Government Payment Services (NS&I GPS), says that open banking has the potential to “exponentially” increase innovation and improve customer experience as well as lower costs. “This is why NS&I is voluntarily participating fully in the open banking ecosystem and working to ensure government fully supports and benefits from this key initiative,” he says.
The work that is being done behind the scenes appears to be paying off. Nick Down, head of payments at HM Revenue and Customs (HMRC), explains that departments have been “working closely both individually and collectively” with OBIE – through the Government Banking Service – to “explore the potential strategic and practical benefits” of open banking.
‘Seamless and integrated’ interactions
HMRC itself has an increasing interest in open banking, including its ability to streamline both payment and account information services. The department is also exploring Legal Entity Identifiers – 20-character, alpha-numeric reference codes that can be used to identify business entities involved in financial transactions.
“It’s still early days,” says Down. “The number of open banking service providers is growing [about 250 are enrolled in open banking and regulated by the CMA]. There are interesting propositions emerging in data integration, for instance enabling organisations to better reconcile payments and accounts information, developing interbank push payments to provide an alternative to card transactions, which can attract high fees, and also an increasing choice of remote secure payments via smartphone and tablets. All these could save taxpayers’ money by reducing government costs.”
Down cites tax-related interactions as another area where open banking could make citizens’ interactions with government “seamless and integrated”. At present, third-party tax software products interact with HMRC systems through the department’s APIs. For now though, while the software uses open banking APIs to access a customer’s bank account, it does not give HMRC access to a customer’s open banking data.
Among other developments in UK government, the Crown Commercial Service (CCS) has added open banking participants such as TrueLayer to its ‘Payments Acceptance’ framework.
Simon Lyons, OBIE’s head of ecosystem engagement, emphasises the significance of open banking for government payments. “The first forays into open banking by government will be a new payment method for fiscal or public provisioned services,” he says. “Potential examples include vehicle tax, council tax, business rates and potentially parking charges. Payments is undoubtedly top priority.”
The use of APIs for identity purposes comes a close second to payments, Lyons says. “The ability to identify the name on a bank account using open banking account information or Confirmation of Payee [a name-checking service for people using online banking] will have a tangible effect on fraud and losses experienced, in both the private and public sectors,” he explains. “Application here could include benefits payments and Universal Credit assessments. The assessment of tax liability and benefits eligibility is a clear use case. Open banking allows the aggregation of multiple data sources and the benefit of this to public bodies is significant.”
He concludes: “Identity coupled with payment and aggregation of third-party data is where the true benefits of open banking will be realised.”
Automation for the people
Outside central government, NHS Credit Union is already making use of open banking. The Glasgow-headquartered member-owned organisation uses an app, Nivo, for loan application assessments, on-boarding and communicating.
“It’s a very useful tool, which provides an overview of [someone’s] financial activity when assessing borrowing,” says chief executive Ruth Dorman. “It has reduced the time it takes for members to send in paper statements, the manual process of reviewing these and, in turn, the processing time of loan applications,” though she concedes it “does not yet” replace the use of credit checking for lending.
In the private sector, credit reference agency Experian received an open banking licence two years ago. The company provides debt collection services to local authorities and works with organisations including Money Advice Scotland to help customers in financial difficulty. Rob Haslingden, Experian’s head of digital propositions, provides similar rationale to Dorman as to the advantages of incorporating open banking technology. “Open banking allows the automation of a process that usually involves a 50-minute interview with a call handler, making it quicker and more efficient for customers and debt advisors to share information, while ensuring that a customer pays what they can afford to pay,” he explains. “This includes allowing consumers to consent to share their credit information and their open banking data in a single, integrated data passport.”
Haslingden cites a similar use in housing provision, with open banking automating the process of assessing prospective tenants’ income and expenditure.
“We’re doing it in the private sector but taking what we’ve learned into the public sector,” Haslingden says. “The public sector is slightly behind the private sector in terms of implementing open banking services.”
There’s no doubt that open banking has potential to improve public services, but there are various reasons to exercise caution.
Privacy and security concerns are precisely why countries such as Australia and Canada have taken their time when considering whether to embrace open banking. Indeed, Canada’s latest review concluded that “more secure infrastructure” is required to protect people sharing their financial data. In Australia, the government delayed implementing open banking until it was content citizens’ data could be protected and is now pushing ahead, with future applications planned in energy and telecommunications.
Those championing open banking insist the risks are minimal. Lyons emphasises that open banking standards were developed with “consumer protection front of mind”, while Haslingden points out that, for consumers, open banking is not a simple ‘one-click’ approach. “With every exchange you have to consent to share your data,” he explains. “Two-factor authentication sits at the heart of it.”
Nevertheless, experts concede that for open banking to succeed, citizens will need to be aware of the possibilities and feel confident enough to dive in: to download the relevant apps and to engage. “Customer adoption is the key challenge, especially the need to resolve concerns around security of data,” says HMRC’s Down. “A coordinated effort between regulators and government on data security, consumer protection and liabilities is likely to improve public confidence and the rate of adoption.”
NHS Credit Union’s Dorman estimates that 10-15% of the union’s members use open banking at present and picks up on the theme of convincing a potentially wary public. “I suspect it is a facility that is being met with levels of suspicion – ‘Big Brother is watching’ mistrust,” she says. “When members experience the benefits, and hear of the benefits, this percentage will change.”
Robert Bownes, chief executive of tech-focused PR and marketing company Old Street Communications, whose clients use open banking, also picks up on the public trust challenge. “When the government starts to implement open banking services within the public sector, it’ll be critical that they maintain trust by being fully transparent with how the data will be used and what people will get out of it,” he says. “Open banking has the capacity to really streamline services and increase access so this shouldn’t be a hard sell.”
A ‘critical year’ for acceleration
The perceived risks and public awareness are two things delaying global uptake. More broadly, with open banking such a new initiative, there is a sense that governments are waiting for it to become more established before jumping to implement it.
OBIE’s Gulamhuseinwala sought to emphasise two months ago that it is important “not to overstate where open banking is”, saying that “we are still in the very, very early stages”. More specifically he described OBIE’s need to “build out more payments functionality” in open banking.
“Payment APIs are not yet fully operational in the UK with all the nine major banks but they should be towards the latter half of this year,” Haslingden says. “This year is critical to accelerate it.”
Like Gulamhuseinwala, Bownes cautions against expecting “large changes overnight” but says “make no mistake, the long-term direction of travel is fully in favour of governments across the world embracing open banking.”
The direction of travel does appear to be set with advocates inside government departments fully on board and eager to press ahead. “Customers’ interest is growing, and as their confidence grows it will be easier to implement the practical uses of open banking,” says Down. “The focus is starting to expand from sharing data and account information to enabling payments and the flow of related data. In time, we can see open banking solutions becoming the norm.”
To date, many governments have taken the slow and steady approach to open banking, imitating the tortoise rather than the hare – and perhaps sensibly so. But is the tortoise now quickening its pace? OBIE has described 2020 as the year when adoption of open banking should “really take off” – watch this space, in the UK and beyond.