On Monday, Britain’s financial regulators announced the formation of a new body over the next two years to promote greater competition in banking services through the use of third-party apps from fintech firms.
Open banking refers to third-party firms that use banking data from mainstream lenders’ customers to offer tailored services such as lending or payments, a sector that has helped Britain’s fintech sector become the world’s third largest, with 2,500 companies.
Open banking, which is currently used by approximately 7 million consumers and businesses, was launched in 2018 by an order from the UK’s Competition and Markets Authority requiring nine banks to share data with third-party companies if customers give permission.
Regulators now want to move on to the next stage of establishing a long-term body to help boost open banking adoption and spread it to other parts of the economy – and to help London thrive as a global fintech hub post-Brexit by providing more company listings to compete with New York and EU financial centers.
“We will also work with open banking participants over the next few months to undertake further analysis of the options for the structure, governance, and funding of the future entity,” the Financial Conduct Authority and Payment Systems Regulator said in a joint statement.
“While significant progress has been made,” the statement said, “there is still work to be done to deliver the full benefits of open banking within retail banking markets and beyond.”
According to Marion King, chair of Open Banking Limited, which checks whether the nine banks comply with open banking rules on customer data, the regulators’ recommendations will maintain momentum in open banking and extend its benefits to other sectors.
Britain is eager to advance open banking following Brexit in order to attract more fintech to set up shop in the country, as the European Union prepares to compete with its own version of open banking.
“It’s rare that legacy firms have the ability to innovate at the pace required to make the most of changing technology and keep us internationally competitive,” UK financial services minister Andrew Griffith said at the annual conference of UK fintech industry body Innovate Finance.
Griffith stated that the data protection draft law, which is currently being debated in parliament, will be used to put open banking on a sustainable footing.
The UK fintech sector is successfully leveraging open banking technology, according to regulators, but industry officials warned the government and regulators against complacency on Monday.
“This will be the year when the next generation of open banking is delivered.” “We’re not going to sit on our laurels,” Griffith said.
According to Chris Hayward, policy chief at the City of London Corporation, which administers the capital’s financial district, Britain’s fintech sector ranks third after the United States and China, with investment in UK fintech totaling $12.5 billion last year.
“Global competitiveness is the name of the game right now,” Hayward explained.
Fintech players must not be hampered by upcoming tougher consumer protection in the United Kingdom, according to industry officials.
“We now need to see proportionate regulation,” said Janine Hirt, CEO of Innovate Finance, the UK fintech industry body.
