A Brave New World – Will Open Banking Boost The UK Fintech Sector?

3. January 2018.
Source – Trevor Clawson

Open Banking will require major banks to share data with challengers

Open banking is coming to the UK. To be more precise, from January 13, 2018, Britain’s nine largest banks and one building society will be required to make customer account data available to approved rivals. If all goes according to plan, the new regime will herald a bold era of competition by allowing up-and-coming challenger banks and fintech (financial technology) businesses to compete on a more-or-less level playing field with the giants of the financial services industry.

As originally envisaged by the UK Competition and Markets Authority (CMA), open banking will be underpinned by a secure set of online technologies, designed to enable bank customers to authorize third parties to access their account details. And this is – potentially at least – very good news indeed for the burgeoning fintech industry, both inside and outside the UK.

Britain’s fintech companies are on something of a roll at the moment. According to London and Partners, technology-driven financial services companies based in the UK raised more than $1bn in VC cash between January and October 2017. Meanwhile, on the ground, fintech firms are eating into the market share of incumbent banks across a number of areas.

In the business loans market, peer-to-peer platforms have become increasingly accepted as a source of debt finance. For instance, in the three months to September, pioneering peer-to-peer platform, Funding Circle rang up £114m in new net lending to small businesses. This compared with £95m in new net lending by the big four banks.

In the consumer market, there is also evidence that challenger banks and fintech companies are making progress. According to a survey conducted by Decision Technology, 43% of bank retail customers would consider sourcing a personal loan from a fintech provider. Although consumers were less amenable to opening savings accounts (only 26% would do so).

Bumps In The Road

But for all the progress made, Fintech entrepreneurs have faced major challenges. For one thing, incumbent banks handle the vast majority of UK current (checking) accounts and thus, also, hold a huge amount of data on how their customers manage their money. From the perspective of, say, a data-driven loan provider, this information could underpin bespoke offers on loan interest rates. As things stand, the information isn’t available but when the Open Banking rules come into force, the big players will have to make the information they hold available to rivals who have successfully applied for a licence.

The Banking Future

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