Britain’s financial regulators said on Monday they would set up a new body over the next two years to encourage more competition in banking services through the use of third-party apps from fintech firms.
Open banking refers to third-party firms using banking data from customers at mainstream lenders to offer tailored services such as lending or payments, a sector that has helped to turn Britain’s fintech sector into the world’s third largest with 2,500 companies.
Open banking, currently used by about 7 million consumers and businesses, was launched by an order from Britain’s Competition and Markets Authority in 2018 requiring nine banks to share data with outside companies, if customers give permission.
Regulators now want to move to the next stage of setting up a long-term body to help boost uptake of open banking and widen it to other parts of the economy – and help London flourish as a global fintech centre post-Brexit and help provide more company listings to compete with New York and EU financial centres.
“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, there is more to be done to deliver the full benefits of open banking within retail banking markets, and beyond,” the statement said.
The recommendations from regulators will keep up momentum in open banking and extend its benefits to other sectors, said Marion King, chair of Open Banking Limited, which checks on whether the nine banks comply with open banking rules on customer data.
Britain is keen to push open banking to the next stage following Brexit to attract more fintechs to set up in Britain as the European Union is poised 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 to keep us internationally competitive,” Britain’s financial services minister, Andrew Griffith, told UK fintech industry body Innovate Finance’s annual conference.
The data protection draft law, now going through parliament, will be used to put open banking on a sustainable footing, Griffith said.
The regulators said the UK fintech sector is successfully leveraging open banking technology, but industry officials on Monday warned government and regulators against complacency.
“This will be the year of delivery on next generation of open banking. We won’t rest on our laurels,” Griffith said.
Britain’s fintech sector ranks third after the United States and China, with investment in UK fintech totalling $12.5 billion last year, said Chris Hayward, policy chief at the City of London Corporation, which administers the capital’s financial district.
“Global competitiveness is the name of the game now,” Hayward said.
Industry officials said upcoming tougher consumer protection in Britain must not hobble fintech players.
“We now need to see proportionate regulation,” said Janine Hirt, CEO of Innovate Finance, the UK fintech industry body.
