The Global Open Finance Index published by Open Banking Excellence still found the UK to be ahead of countries such as Germany, France and the Netherlands in terms of its regulatory, entrepreneurial, and consumer scores.
“According to our 2022 FinTech Investment Report, UK fintech attracted $12.5bn of investment in 2022, second in the world only to the US and ahead of all of Europe,” says Janine Hirt, CEO, Innovate Finance.
The UK has more than 200 home-registered third party providers (TPPs), while no other European country has more than 50.
“In 2017, the UK created the blueprint for open banking. In the five years since the first UK customer used an open-banking-enabled service in January 2018, the sector has grown to over six million users and 600,000 SMEs using products and services which utilise our world-leading standards,” said Andrew Bowie, MP.
Despite this, there has been little mention of open banking from the current government.
“In order to keep our competitive edge and attract fintech listings, it was essential that we reduce the free float requirements from 25% to 10%. We have also enhanced the governance rights, and dual cross share structures are now permitted.”
Sir Ron Kalifa OBE, Chairman, Network International
“Our mission was to offer an actionable guide to keeping the UK at the forefront of global innovation in financial services. There has been significant progress made against the majority of the recommendations. The FCA has now announced that it concluded a successful pilot for early and high growth oversight,” says Sir Ron Kalifa OBE, Chairman, Network International and author of the influential Kalifa Review.
“As the discussion around digital money continues, it is also important that the Bank of England and the Treasury have established a task force to scope out the viability of a UK Central Bank Digital Currency (CBDC). In order to keep our competitive edge and attract fintech listings, it was essential that we reduce the free float requirements from 25% to 10%. We have also enhanced the governance rights, and dual cross share structures are now permitted.”
Data is key
The report posits that market-driven ecosystems take longer to develop technologically but have better value propositions. Ecosystems such as the UK that are driven by regulation take a tech-first approach and have more freedom to experiment.
“In the UK, the regulatory push was just the beginning of open banking. This is just the first stage of a much broader process that opens up the entire customer experience to the potential of being genuinely personalised,” says Felipe Peñacoba Martinez, Chief Information Officer, Revolut.
“Having a data-led insight into customers will allow financial institutions to support that whole journey end to end in a way that wasn’t possible before. The potential is huge, but we’re still held back in this country by the scope of the data that’s available. Banks need to have the right incentives in place to open up to data beyond just the transaction history – when that happens we’ll unlock the next wave of innovation and opportunity.”
“So much of reaching our global sustainability goals lies in measuring data – which is exactly what fintechs do best – and driving capital towards activities aligned with net zero.”
Janine Hirt, CEO, Innovate Finance
Open finance also has the potential to contribute toward ESG goals such as net zero.
“Fintech has a critical role to play in terms of helping us reach a more sustainable future in the financial services space and as an economy overall. So much of reaching our global sustainability goals lies in measuring data – which is exactly what fintechs do best – and driving capital towards activities aligned with net zero,” says Hirt.
Financial inclusion
Open finance will be an enabler of financial inclusion. In the 23 countries investigated, the unbanked population stood at 400m. A 2021 World Bank report meanwhile says roughly 1.4bn adults worldwide remain unbanked.
In emerging markets and developing economies, the growth of banking services has been particularly positive, with the percentage of people that hold a bank account soaring from 42% in 2011 to 71% in 2021.
Open finance has the potential to continue this momentum or even accelerate inclusion. By reducing the cost of delivering services, open finance makes it more profitable to serve groups which have traditionally been excluded from the financial system. However, there is still work to be done to enable unbanked people to open accounts in the first place.
“Financial inclusion is not just about bank accounts. It is essentially about a person or small business having access to a transaction account through which they can make or receive payments and carry out day-to-day economic and social interactions. In that sense, I think non-banks have a big role to play globally,” says Harish Natarjan, Lead Financial Sector Specialist, World Bank.