At a supper at 11 Downing Street a few years ago, I was struck by something said by the chairman of technology giant Google. He said one of the key reasons they base so many of their operations in the UK is that “the British public are early adopters”. Obviously there are numerous other factors such as the English language, our culture, the tax system, a skills base which is as deep as it is broad, and an explicit commitment to innovation by the government. But the fact that our people are adaptive and accommodating of new technologies is what makes us the best place in the world for cutting-edge firms to develop new services, experiment, perfect and scaleup to meet global demand.
If open banking is to succeed anywhere, it will be in Britain. Despite the parched phraseology of open banking, fully comprehensible only to technology geeks, the set of financial regulations, protocols and standards represents one of the most ambitious pro-consumer reforms of recent decades. It heralds a paradigm shift of power from big institutions towards their customers.
I’ve already seen some amazing companies developing products that will delight consumers. For example, a new firm called Moneybox helps people save money through an app, which rounds up their purchases to the nearest pound and invests the change into a stocks-and-shares ISA. This open data will also help existing fintech companies, such as Swoop, which helps SMEs search for the best opportunities for funding.
However, as with all similar innovations, it relies on these new services being widely embraced to achieve success. If the postulation of Google is correct, the UK should have the best chance of making open banking a success.
It might be seen as disappointing that, six months on, a YouGov poll found that 72 per cent of the British public are unaware of open banking or what it means. But we should not be alarmed. After all, many people will not be familiar with the term “fintech”, but in 2016 around 16 per cent of online consumers had used two or more fintech services. With the explosive growth of digital banks such as Monzo, Starling and Atom, and forms of contactless payments such as Oyster cards, this figure will be substantially higher today.
The pattern of adoption of open banking products is similar to that of online banking, which began slowly but is now an essential feature used by millions of consumers and institutions. Open banking products are likely to follow a similar trajectory to become an essential standard used across the financial services ecosystem.
A key challenge to the widespread adoption of open banking is the agility (or lack thereof) of the more traditional retail banks in enabling the benefits of open banking to reach the public. Given their frontline role and reach, it is clear they must play an essential role in communicating the benefits of open banking to their consumers.
Open banking is a major innovation for UK financial services and it was inevitable that some banks would not be ready for the transition in time. Open banking has not proved to be an overnight revolution for consumers, and clearly there is still work to be done by the banks in communicating the benefits to their customers. It is only right that politicians and policymakers continue to ensure that open banking is being given the oxygen required to continue to grow and expand. However, we should also be heaping praise on those banks that have taken a lead. For example, Nationwide’s Open Banking for Good challenge is a worthwhile initiative, designed to convene fintech organisations and money advice charities to create apps and services that promote financial capability.
The real potential of new open banking services is a major boost in productivity which will be even more vital to the UK after we leave the EU. If we want to make our way in the world then we need to set the gold standard for other countries to follow. The aptly named Open Banking Implementation Entity has set standards akin to the IP protocols that underpin the internet. Few people understand them but everyone reaps the benefits. The British standards are widely admired and already being copied and followed by other countries, and I am fully confident that the UK approach will be regarded as the global “gold standard”.
We have a head start in open banking and fintech, but it is not a birthright. We can maintain our number-one slot only if we remain vigilant and determined to swiftly adapt to a fast-changing world.
It is reassuring that both the fintech all-party parliamentary group and the Treasury Select Committee report came to the same conclusion that digital currencies and Initial Coin Offerings (ICO) are the next big areas of fintech that will need to be examined if the UK is to keep its number-one slot in financial services.
I believe we must accelerate the shift of power from the big banks to the consumer by embracing financial technology. It will bring about a revolution that puts the consumer and the public first with a wide range of services and the ability to switch between banks at the click of button.
Our success can be judged today by how vigorously we promote consumers and hold the big banks to account for implementing and embracing these new technologies. Government has a role to play, but so too does the public in demanding that they be allowed to use these new services without undue hindrance.
Adam Afriyie MP is chair of the APPG on fintech.