Britain’s financial regulators have announced their plans to establish a new body in the next two years with the aim of fostering greater competition in banking services by integrating third-party apps from fintech firms.
Open banking involves third-party companies utilizing banking data from customers at mainstream banks to offer customized services such as lending or payments. This sector has played a significant role in propelling Britain’s fintech industry into the world’s third largest, with around 2,500 companies operating in this space.
Open banking, currently used by approximately 7 million consumers and businesses, was launched in 2018 following an order from Britain’s Competition and Markets Authority. This order mandated nine banks to share data with external companies, provided customers gave their consent.
Now, regulators are taking the next step, focusing on establishing a long-term body to promote open banking’s adoption and expansion into other segments of the economy. This initiative aims to ensure London thrives as a global fintech center post-Brexit and provides more company listings to compete with financial hubs in New York and the EU.
The Financial Conduct Authority and Payment Systems Regulator issued a joint statement, saying, “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.”
“While significant progress has been made, there is more to be done to deliver the full benefits of open banking within retail banking markets, and beyond,” the statement continued.
Marion King, chair of Open Banking Limited, emphasized that the regulators’ recommendations will maintain the momentum in open banking and extend its advantages to other sectors.
Following Brexit, Britain is eager to advance open banking to attract more fintech firms to establish themselves in the country, as the European Union is preparing to compete with its own version of open banking.
Andrew Griffith, Britain’s financial services minister, stated, “It’s rare that legacy firms have the ability to innovate at the pace required to make the most of changing technology and to keep us internationally competitive.”
The data protection draft law, currently making its way through parliament, will be instrumental in ensuring the sustainability of open banking, Griffith added.
The regulators highlighted the successful utilization of open banking technology by the UK fintech sector. However, industry officials have cautioned the government and regulators against complacency.
Griffith said, “This will be the year of delivery on the next generation of open banking. We won’t rest on our laurels.”
The UK fintech sector ranks third globally after the United States and China, with UK fintech investments totaling $12.5 billion last year, according to Chris Hayward, policy chief at the City of London Corporation, which oversees the financial district in the capital.
“Global competitiveness is the name of the game now,” Hayward noted.
Industry representatives stressed that upcoming stricter consumer protection regulations in Britain must not impede the progress of fintech players.
“We now need to see proportionate regulation,” said Janine Hirt, CEO of Innovate Finance, the UK fintech industry body.
