What is open banking?  Open banking services for UK consumers were launched on January 13th, but what does that mean for consumers, banks and fintech startups.

The Competition and Markets Authority (CMA) has made the new rules a formal requirement for the 9 largest current account providers in the UK with the launch of the Open Banking initiative.

The chairman of the UK’s retail banking investigation said, “Open banking will make a transformational change to banking for personal customers and small businesses – For the first time innovative and secure apps will provide personalised services and information to cover all financial needs in one place, and make it easy for people to find out what bank account is best for them.”

Essentially what it means is that, in practice, customers could have various different providers for their financial products. For instance, they could have a current account with one provider and bolt on other financial services and products such as insurance policies, an ISA or mortgage and investments using other providers, all under the interface of their choosing.  This approach is also known as ‘Baap’, banking as a platform.

Regulation is required for open banking with the new rules stating that banks must create open APIs so that customer data can be shared with authorised third-party applications in a secure, common and consistent format. (API is an application programming interface, a set of routines, protocols, and tools for building software)

AIB Group, Bank of Ireland, Barclays, Danske, HSBC Group, Lloyds Banking Group, Nationwide, RBS Group and Santander have all been working together to create that open API standard. In practice, this should look like a set of documentation, development code and reference implementations that anyone can use, dramatically bringing down barriers to participation in financial services.

They also cover more confidential customer transaction data. This data will allow developers to securely view things like transaction history when applying for a mortgage, or, for example, to alert users that they are at risk of becoming overdrawn.

Open APIs for what the CMA calls product and reference data are also included. These will allow developers to create price comparison services, or include ATM locations on their maps, for example.

The big banks, smaller challenger banks and fintech companies will be looking to provide customers with the best possible banking experience as open banking leads to more competition for customers.

Matt Cox, head of insight and innovation at Nationwide Building Society is a little sceptical about the impact. Speaking with Computerworld UK, Cox said: “So when this thing launches do I think there will be an explosion of people using it? No.

“Traditionally you see a relatively consistent take-up profile, with early adopters and 5-10 percent of users waiting to consume this. There will be an adoption curve and the steepness of that will come down to how we as an industry get trust and security right.”

Research from Accenture backs up this few. The research found that two-thirds of consumers in the UK won’t share their financial data with third-party providers such as online retailers, tech firms and social media companies. Surveying 2,008 UK consumers during August 2017, the research found that 69 percent of respondents would not share their bank account information with these third-party providers. More striking still was that 53 percent of the consumers said they “will never change their existing banking habits and adopt open banking”.

“Open banking has the potential to transform consumers’ relationships with financial products, but it hinges on consumers’ willingness to embrace it,” said Jeremy Light, a managing director at Accenture as part of its Payment Services Practice in Europe.

“Until new entrants to the financial services sector can earn consumers’ trust, banks can draw on their extensive heritage to secure an important early advantage.”

The European Commission similarly has set in motion the Revised Payment Service Directive (PSD2).  Similar to the CMA’s new rules this forces European banks to open up customer data via a standard set of APIs.

How this applies to the UK post Brexit is unclear. It requires all member states to comply by 13th January the same date as the new CMA rules came into force.

The banks themselves are positive about open banking, despite it posing a potential threat to their businesses.

A recent Mckinsey report, “Brave New World for Global Banking’ estimated that European and UK banks currently have $35 billion, 31% of profits at risk because of digitisation in general. “More severe digital disruption could further cut their profits from $110 billion today to $50 billion in 2020, and reduce returns on equity in half to one to two percent by 2020, even after some mitigation efforts.” Said the report.

An early mover when it comes to PSD2, HSBC UK announced on 28th September that it will allow customers to see all of their accounts on one screen, even if they are with a rival bank. The bank planned to do this through a new test and learn mobile banking platform ahead of introducing a new app for customers in early 2018. Within the HSBC Beta platform, customers can add current, savings and mortgage accounts from up to 21 different banks, including Santander, Lloyds and Barclays.

HSBC says this is the starting point ahead of the launch of a range of new open banking-enabled features. This includes Safe Balance, which shows customers how much disposable income they have before their next payday, and a Spend Analysis tool, which categorises spending, adds tags, notes and photos to transactions and analyse patterns for more informed decision making, much like customers of Monzo would be accustomed to through its mobile banking app.

Becky Moffat, head of personal banking at HSBC, said at the time of the announcement: “We want to provide customers with greater control and make their lives easier. Through our Beta app we want to give our customers a complete and joined-up view of their financial life and make it easier for them to choose confidently, taking the hassle out of checking dozens of statements and manually calculating what’s left.”

Kevin Hanley, director of design and services at RBS said that the bank wants to position itself as “the bank of APIs”

“You see the disaggregation of banking services, the disintermediation of banking services, banking becoming more unbundled, more modular,” he explained.

“We are moving from an era of physical banking to a connected bank of digital services. This starts to re-frame banking and our role in it as much more of a composite where we both provide services and link to other services. So, we become a platform for our customers to navigate around.”

Matt Cox from Nationwide believes that “the regulations are well intended to drive the right customer outcomes.”

These include the ability to “provide our members who have transactions data with us and money held with us to easily and securely get access to that data to use with whatever provider they choose,” he said.

Finally, David Beardmore, commercial director at the Open Data Institute (ODI) raised the concern that open banking could become a “compliance exercise” where banks “agree to do what they are told to do and parking it and forgetting about it.”

“I don’t think all nine banks think that way and I know for sure some fully embrace the spirit of open banking,” Beardmore said.