Louise Beaumont, co-chair of the techUK Open Bank Working Group, shares an update on the implementation of open banking in the UK and the Second Payment Services Directive (PSD2), and the future role of the open banking platform.
Here is the transcript:
Emmanuel Daniel (ED): Very pleased to be able to speak to Louise Beaumont, the co-chair of the Open Banking Working Group in the UK; that last year, in 2016, you published a paper on APIs which was…
Louise Beaumont (LB): Okay. Let me introduce myself and explain all of my different roles. Firstly, I’m a strategic adviser to the Publicis Group, and in that role I advise with Publicis Group and the clients on the open banking future and how they can innovate in that space. So, dreaming, imagining what the future of the customers with us, consumers deserve. Secondly, I coach at techUK’s Open Bank Working Group and that’s about bringing the most of the technology industry to bear on the government’s financial services policy making, to make sure that we get policy framework in this country, again, our consumers and our small businesses deserve. I also sit on the Open Banking Implementation Entity and that’s a far more present role. I sit on the customer working group there, and I sit on the fintech and the PSD2 stakeholder groups, and that’s really trying to make sure that the open banking standard foundations are built to deliver that policy and the open future our consumers and small businesses deserve.
ED: Who drives the open banking foundations?
LB: The CMA9, the Competition and Markets Authority designated nine banks in the UK to be subject to its order for the Open Banking Standard. Now, all nine of those banks sit on the Open Banking Implementation Entity and the Open Banking Implementation Entity has a responsibility to involve fintech companies and other innovators to try and create certain banking standard. Now, the complexity of the Open Banking Implementation Entity has made it hard for these small companies, those innovators to participate because it’s a very heavy process but nonetheless, by the 13th of January next year (2018), the Open Banking Standard goes live. By that point, banks need to implement the Open Banking Standard which was released in July of this year (2017), so the banks have agreed the standard, they now need to make sure they’ve delivered against that standard which allows any consumer or small business, to share their banking transaction data as they choose to, with their consent, to get access to services, which they would find to be valuable. So every consumer, every small business, as of 13th of January next year (2018), will be able to do that and what they need to decide is the services that they could use. Do they offer them value for data? Do they get a better service? More informed? More tuned? More personalised service? If they share their data.
ED: Which means the banks have to then hand that data over to the customer who then decides what he wants to do with it?
LB: No. As a consumer, as a small business or as a consumer, I choose to adopt, say, a service from a third party provider. I decide that service looks like good value for data and I agree to share my data with that service provider and what I need to do is click “YES”, for example, if I choose to accept that service and what the bank institute…
ED: This is financial data, right?
LB: Absolutely, it’s financial data. What the bank needs to do is to make sure that it is, indeed, a trusted third party, which is on the Open Banking Implementation Entity’s directory, and which is authorised by the FCA.
ED: In getting to this point, where you’re going to be launching it next year (2018), where are the banks in terms of the technology required to give that data back to the customer?
LB: Well, I’ve been on a journey. They’ve developed the Open Banking Standard in cohort with the CMA, the rest of CMA, nine as part of the Implementation Entities, they developed the standard. They did a trial run which was about being able to release APIs, which showed you where ATMs were and where bank branches were. Now that, even in itself, is not interesting information and indeed, I don’t think anybody has innovated upon that data but that was really to make sure that banks could work together and could develop a standard, and could deliver the API that deliver that standard to a specified timeframe. So it was like, kind of practice run, now they are advanced in delivering that API standard for January and I think, in January, as is often the way, success will be declared, victory will be declared, and there will be a clean-up to make sure that everybody has actually delivered over the subsequent couple of months.
ED: Except for the mandate given by the government, would a bank’s resistant to it initially? Were there any points in which the banks bolt and pullback and said, “This is something that we’re comfortable with?” Or what about the process of making that data available difficult, in any way, at any point?
LB: I think, there’s been a break of common sense, in terms of just getting on with it. However, I would say that the way that the banks have approached, this is very much as a compliance issue, and what it really is, is a strategic issue for the boards. Actually, what the boards need to be discovering and deliberating upon is, “What is the role of their bank, or banking in general, in an open future?” where we have interesting and diverse competitors already in the marketplace and entering the marketplace. From the smallest of immersed, innovative fintech companies up to the largest tech titans with the proven ability to deliver adjacent services at scaling pace, where they are well integrated into the value added services around other financial service, delivering and consistently railing out new services which acts as a value added layer.
the customer and then in other areas which, growing in the periphery, peer to peer lending, for example, and so on; where are these players’ placed in taking advantage of an open platform in January (2018)?
LB: If you are delivering financial services, like for example, a semi-lending; you can, as of January the 13th (2018) ask your customers if they would like to share the transaction data with you in return for very accurate credit scoring, which is real-time and dynamic, for example. The SME may think, well actually, that’s pretty useful because I’m actually getting credit scored against my performance, against my ability or they may decide, “No, no. I don’t want to share that data in which case, I will… I do not get lend to.” or “I will pay a premium for my privacy.” You can imagine a whole lot of different scenarios as of January next year (2018). In principle though, however, I think that a lot of the blenders, if you just want to talk about the alternative finance space, will be looking to deliver services which are much more accurate and based upon that real-time data.
ED: Do you see financial services becoming increasingly real-time? Increasingly granulised in that… it meets needs in a specific point of time as this data, this open data usage grows?
LB: Yeah, absolutely. We demand, as consumers and small businesses, we demand hyper-personalised, real-time, and predictive services in every other part of our lives. Why wouldn’t we do that in financial services? If the rest of my life is well-served in a real-time, on demand, hyper-personalised way; whether that’s my shopping life, my gambling life, my dating life, any other aspect of my life; why should financial services stay as a product pushed straight out of the 17th century? No. We know that services delivered now are hyper-personalised, real-time, dynamic; they flex and flow around individuals. Yes, not from big banks and the question is “Did I want to change them?”
ED: Right. Now with the UK, will the UK be one of the first countries in the world that goes off live with open data platform?
LB: The open banking standard comes in real-time January of next year (2018). PSD2, I think there’s some final arguing about secure customer authentication, how that really is delivered. So the banks here in the UK are mandatorily required to deliver this year, before anywhere else in the world. Not the first banks to do it, though. Some banks have taken a foremost strategic attitude to this, yeah.
ED: And that’s the philosophy that they wanted to project themselves with. What’s to become of this idea of big data? What are the big data vendors telling you in terms of how this open data platform would feed into what they do, what they considered to be valuable data about customers? Is there a kind of a collaboration? Is there a kind of a bigger picture that can be formed?
LB: Yes, and my view is that banks have a choice. They can just be data donors. They can give out that data or they can go out there and be data seekers because, let’s face it, the granularity of the data that they hold on from individual consumers is degrading. If you look at your bank account, it might have a whole lot of PayPal transactions, Samsung pay transactions, credit card transactions and so on. The granularity of what you get, what you’d buy, where you go, the behavioral data that the analysis that you could deliver above that, is diminishing; and it’s diminishing because there’s value added services, the services that we’re absolutely used to. So really, in reality, the banks need to do two things. They need to look at the data they still have. They need to persuade customers that it’s too valuable for them to hold that data and they need to go out there and they need to enrich that data. They need to… it’s a religious conversion. They need to start valuing data and historically, what they’ve done is, hidden it, hoarded it, and never have looked at it. They need to start looking at the data in the first place, that they hold. They need to accept that it’s degrading, they’re losing the granularity of it and they need to pull in additional data sets to be able to fulfill a more rounded picture that clients, if they wish to regain customer relevance, and I do think it’s regaining customer relevance ‘cause they have lost that emotional connection with clients. They’ve lost the high-touch relevance to a client and it’s about whether or not they wish to regain that relevance.
ED: Yeah. Just three very quick questions. Do you see a commercialisation of the data that is going to be out in the market as a result of new companies coming out, trading, or are tracking that data?
LB: Well, I think, there are three types of service that will be delivered. One, obviously, the payment types of service when comply try open banking. Secondly, I think, the aggregation type services when they comply open banking and thirdly, far more interestingly, the things we haven’t thought of yet, and that’s where the real value is.
ED: What about the role of the open banking platform, the working group be, after it’s implemented?
LB: Okay, so, to be really clear, techUK’s Open Bank Working Group will continue because we want to see the good implementation of good governance of course. The Open Banking Implementation Entity will be handed-over to a governance authority. At the moment, they are suggesting new payments systems operator. That is obviously problematic. The banks wouldn’t in fact, become gatekeepers to that competitors and there’s… for we, obviously, are concerned for that which I’m sure, will be flagged by the Competition and Markets Authority, the Treasury and the Financial Conduct Authority. I think we need to make sure that our governance going forward actually does what it’s supposed to do, drives up competition and drives up innovation. We need a well-served, financially inclusive, financial services sector in the UK.
ED: Just last question. With the security concerns that were flagged and dealt with in the process and where are we with that?
LB: I think there’s a, very obviously, security concerns to make sure that we are accurate. When a consumer chooses to share their data, it’s been done to a trusted third party that is on the Open Banking Implementation Entity’s directory and which is authorised by the FCA. My concern, and techUK’s concern, is very much around communication to the consumer and to the small business. This has got to be handled well and it cannot just be left to the banks. We need to make sure that consumers and small businesses understand the potential for them in using banking services and that they know that it is safe and secured.
ED: I asked this only because for other regulators watching you say, describe the whole programme. Is it the job of the regulator to dictate what the authentication process should be? Is there any aspect of the open platform where the regulator dictates?
LB: The Competition and Markets Authority issues that order and then the Implementation Entity which has the CMA, the FCA and the Treasury as steering group needs to come up with the mechanism by which they believe, they will be able to deliver security and make clear for its own liability. And I think that’s why this is important for the Implementation Entity to do its job and do it well but the governance going forward is genuine, is independent, and is thorough.
ED: Louise, thank you very much for that.
LB: Thank you very much.