Regulations designed to open up the UK’s current account market could lead to an influx of new players and services according to a new PwC Open Banking report.

In January 2018, new rules came into effect requiring UK banks to share current account holder data with third parties through application programming interfaces (APIs).

These APIs can be used by challenger banks, fintechs, tech companies and credit reference agencies to open up the banking industry, improve the public’s experience with the financial services sector and enable innovation.

The Future of Open Banking

The PwC research forecasts the market could reach 8.1m consumers, 2.4m small businesses and be worth £2.3bn by the end of 2018. By 2022, PwC claims the Open Banking sector could quadruple its worth to generate £7.2bn of revenues.

PwC, in collaboration with the Open Data Institute, conducted interviews with executives and Open Banking leaders at banks, technology firms, payment providers, FinTechs, regulators and industry bodies, as well as surveying over 1,000  consumers and 213 SMEs across the country.

While the initial aims of Open Banking standards were to increase competition in banking and current account switching, PwC says it has found an impact on broader areas including reduced overdraft fees, greater financial inclusion, better control of data, and improved customer service.

PwC’s survey analysed the key demographics likely to drive Open Banking uptake. There is a widespread distribution of ‘addressable’ (ie the ones most likely to want and use Open Banking products) retail customers across the UK, especially in the Midlands, London and the North of England.

David Beardmore, commercial director at the Open Data Institute, said:

“We welcome this timely report into Open Banking in the UK.  It has used primary research from more than 1,000 consumers and over 200 small businesses to examine attitudes to Open Banking since the new regulations were introduced in January 2018. We also spoke to banks, fintechs and payment providers to give the first accurate picture of how this step-change in financial services provision is developing six months after its inception.

“At the ODI, we believe that Open Banking has the potential to radically alter the face of banking in the UK, and from our work with other countries we know that many of them are looking closely at the UK’s progress and are keen to learn from it. We are pleased that we were able to collaborate with PwC on this report and believe that Open Banking will produce many opportunities,  not least the rapid burgeoning of the fintech sector. We are hoping for real momentum in bringing to market many innovative products and services which will bring tangible benefits to both businesses and consumers.”

Consumer Behaviour

The survey of retail consumers found that the most addressable type of consumer who industry players will be developing services for are younger, low income and comfortable using technology, and likely to use Open Banking to identify ways to reduce personal expenditure through:

• Aggregation of financial product information
• Analytics of expenditure and direct debits
• Personalised financial product comparisons

The consumers most likely to share data tend to be young, urban-dwelling, high earners who are comfortable using technology and multiple banks. They may be more likely to change between financial providers and may use Open Banking for

• Money management
• Personalised financial product advice

However, PwC’s survey results also reflected the scepticism some consumers hold around Open Banking. Many would rather share their medical information rather than the details of their banking transactions or bank balances.

Customers Driving the Market

According to PwC, the advance of Open Banking is likely to happen in three distinct waves:

“First wave – only current account data is available via APIs, propositions are predominantly focusing on improving solutions to known financial services issues. Many of these propositions are already available via screen scraping.

“The second wave will focus on creating new financial services propositions that address gaps in products and services – where solutions are not currently available in the market.

“In the third wave, open data structures are likely to become more widespread in other industries, and this will accelerate if Open Banking proves successful. It will provide the opportunity for the development of propositions that not only improve financial services, but also feed through into a broader range of life management services by using AI (e.g. a digital assistant that automatically manages tasks such as food delivery, tax payments, utilities bills, etc).”

Jonathan Turner, financial services payments leader at PwC, said:

“We are seeing companies starting to treat Open Banking regulation as a critical topic that cannot be ignored due to the size of the opportunity, but also because of the potential influx of competitors and the potential overhaul it could deal the financial services landscape.

“By providing access to this data to third parties, Open Banking goes some way to levelling the playing field between the traditional financial services providers and new disruptors. Incumbents are at risk of falling behind more technology enabled peers as well as the new market entrants such as FinTechs.

“However, incumbent payment providers are already reacting by boosting innovation, emphasising the valuable features and building on the trust that they have established and invested in over many years.

“Open Banking is a potential game changer for individual and corporate consumers. It provides an opportunity to transform the public’s interaction and everyday experience with the financial services industry. But there are still many ‘hard yards’ to travel. Few disruptive propositions have been developed so far.

“This is unsurprising given that since the launch of Open Banking in January it remains unclear who needs to get an account information licence or a payments handling licence and how these licences may change in the future.”

“If the sector can solve some of  these key issues early, consumers and businesses will benefit faster.”