By Jago Corry
With Innovate Finance calling for the next government to create the world’s leading smart data economy, unlocking £149bn of organisational efficiency, and £66bn of new business and innovation opportunities in the UK economy[1], we held a roundtable at IFGS 2024 with industry, government and regulatory experts across open finance, open banking and smart data to unpack how to achieve this.
Innovate Finance published ‘The Roadmap to Open Finance in the UK’ with KPMG, which paints a picture of how the UK can build on open banking’s innovation to enable data-sharing across further financial services products including insurance, savings and mortgages. The report identifies some of the common infrastructure needed for any journey option, provides a framework for deciding on the UK’s route to open finance, and identifies trade-offs involved in different approaches and how data sets and use cases can be prioritised.
Now within a General Election period, this blog unpacks three key areas of consensus from the roundtable’s discussion for the next government to pick up, building on the report’s proposed ideas for the design of a (series of) roadmap(s).
Market vs regulatory push factors
Firstly, participants discussed policymakers’ thinking around how firms invest in open finance, whether through a universal mandate (‘regulatory push factor’), or firms’ providing access to their data for a fee (‘market push factor’).
The three ‘scenarios’[2] outlined within the report indicate the balance between enabling market-led innovation whilst constructing technical standards and effective governance frameworks to ensure interoperable and consistent data sharing between banks, payment service providers, and financial service firms (including insurance and mortgage brokers).
The National Payments Corporation of India’s United Payments Interface (UPI)[3] was discussed as a leading regulatory-led approach to building one set of interoperable Application Programming Interfaces (APIs), making it easy for firms to divert their business models and technical infrastructure around one set of centralised data points. In contrast, the Financial Data Exchange (FDX) in the United States has taken a more market-led approach[4] of developing the regulatory, technical design and governance frameworks around its open banking APIs[5], following the absence of regulatory enforceable interoperable standards.
Industry and policymakers face the challenge of ‘short-term pain, for long-term gain’, whereby building interoperable data sets will be lengthy and challenging, involving re-wiring business strategies to accommodate lengthy testing of APIs’ technical standards. In return, highly ambitious and complex use cases can be developed. This could include services like embedded credit decisioning within carbon emission tracking, transforming the way investors are incentivised to support sustainable businesses.
The need to showcase clear commercial viability
Secondly, participants discussed the importance of developing data sets and API stacks around use cases identified as having direct commercial value for firms across the value chain. However, it was acknowledged that building commercial interest in new open finance capabilities will be challenging, requiring creative thinking from policymakers and industry experts across financial services.
Additionally, it was agreed that implementing regulatory push factors; including a universal mandate, should also be considered when thinking about developing an effective commercial model for open finance. Delegates referenced the Retail Banking Market Investigation Order 2017 (‘CMA Order’) mandating ‘CMA9’[6] banks to adopt open banking APIs. This was critical for FinTechs’ accessing data sets for the creation of open banking solutions such as faster account switching, attracting investment and further interest from financial institutions across the emerging open banking payments value chain.
Opening up public sector data sets comes first
Lastly, to initiate open finance use cases, participants agreed firms across financial services must be granted access to sensitive public sector data sets, including from HM Revenue & Customs (HMRC), the National Health Service (NHS), and Companies House. These remain a critical bridge towards firms having the right data sets to take forward initial use cases, including income verification and embedded finance platforms.
The experts around the table also pointed towards the importance of automating the government’s processing of data using applications of Artificial Intelligence (AI) and Machine Learning (ML), which will be critical for accessing high-quality and up-to-date sources of data.
What’s new?
Discussions offered key insights from experts across SME lending, mortgages, open banking, payments, and accounting; building a clearer picture of how the government can think about the necessary regulatory frameworks, governance, and commercial models to implement open finance.
Policymakers are faced with thinking about how they can develop the UK’s approach to designing the implementation of initial open finance use cases. This involves finding a balance between India’s (regulatory-led), and the United States (market-led) approaches; from regulatory intervention to ensure interoperability and interconnectivity within a complex mix of data points, whilst creating the right market conditions for firms to adopt and utilise new innovative solutions for their merchant and retail end-users.
What’s next?
With an election now underway, Innovate Finance is working on a ‘FinTech Plan for Government’, which builds on this discussion and will set out how the next administration can achieve the aim of adopting open finance as part of a smart data economy. Additionally, Innovate Finance is working with its members to input directly into the government’s Open Finance Taskforce, which is working to give the government recommendations on opening up data across financial services to unlock improvements within SMEs’ access to finance.
[1] Innovate Finance: General Election FinTech Manifesto.
[2] ‘Universal Mandate’, ‘Individual & Incremental’, and ‘Strategic Plan’.
[4] Under the Executive Order on Promoting Competition in the American Economy.
[5] Within the remit of the Consumer Financial Protection Bureau (CFPB) and FDX.
[6] The nine largest banks and building societies in Great Britain and Northern Ireland, based on the volume of personal and business current accounts.
