The lack of widespread adoption of Open Banking ahead of the COVID-19 outbreak could be seen as a missed opportunity. Firms who had already embedded Open Banking capabilities in their business models were, on average, able to achieve quicker, and in some cases, better outcomes for their customers. And they did so while also enjoying reduced costs and operational pressures.
For example, we know from our conversations with the industry that some FinTech firms making full use of Open Banking APIs, together with strong data analytics solutions, were able to draw a more detailed and realistic understanding of SMEs’ financial history, and process COVID-19 credit applications much more quickly.
Still, the post COVID-19 environment will present more opportunities for Open Banking to prove its worth. In fact, the transition towards recovery may give banks the incentives they need to embrace Open Banking more wholeheartedly.
For example, the UK Financial Conduct Authority expects financial services firms to ensure they treat both their retail and SME customers fairly, and support the most vulnerable, including through potentially prolonged financial hardship. Banks could leverage Open Banking data to create a real-time and fuller understanding of their customers and provide them with products, services and advice tailored to their changing needs and situation. As we highlighted in our blog, such data could be particularly relevant, for example, in relation to Income & Expenditure analyses, forbearance decisions, collections and budgeting support.
But there is still much work to do to make this a reality. Firstly, Open Banking data is not a silver bullet per se - it needs to be supported by the appropriate data-analytics tools and business processes to deliver value. Secondly, some implementation issues of the underlying regulation – the revised Payment Services Directive (PSD2) – remain a hurdle to adoption. The European Banking Authority highlighted recently that across the EU the interfaces and authentication procedures implemented by banks are still too cumbersome. This makes it unnecessarily difficult for authorised third parties to provide their services, and generates avoidable frictions in the consumer journey.
The regulations enabling Open Banking have been in place for over two years now, and regulators could (and probably should) put some additional pressure on banks to fix these issues swiftly. They could also ask banks to justify their choices, if they decide not to leverage available Open Banking capabilities in the interest of their own consumers.
Both the EU and the UK have already started working on the idea of expanding Open Banking to other financial sectors. Open Finance will present many benefits, for both financial services firms and consumers, but realising them will depend on getting Open Banking implementation right first.
 This may be less of an issue in the UK, where the implementation of the CMA-mandated Open Banking Standards has addressed a number of these issues.
“As proven by this crisis, those banks which have been faster in deploying new technologies to improve the quality, pricing and convenience of their products are in a more future-proof position”.