A NatWest commissioned report has concluded that more changes need to be made to Open Banking in order for the technology to take the next step in its evolution.
Oxera, an economics and finance consultancy firm, produced the report which found that banks and fintechs alike need to collaborate more frequently to bring about better use cases to outline the benefits of Open Banking for its wider adoption.
The report aims to provide economic analysis and insights that will help support upcoming decision-making in the next phase of Open Banking in the UK, which has been a “qualified success” according to NatWest since its inception in 2018 with over seven million users of the technology.
Despite this early success, this seven million figure only represents around 10% of consumers and SMEs. Open Banking payments, by several orders of magnitude, are dwarfed by more traditional payment options like cards or direct debits.
The report identifies the economic challenges that currently prevent Open Banking from reaching its full potential. These include a lack of commercial incentives to develop or enhance APIs, and a lack of alignment between ASPSPs (Account Servicing Payment Service Providers – i.e. banks) on the benefits of Open Banking.
There are also significant challenges around managing trade-offs, for example, in relation to security and convenience, within the Open Banking ecosystem.
Oxera outlined three potential routes that can be explored to help address these challenges:
- Mandate banks to offer a wider range of use cases: Expand the scope of Open Banking and require banks to provide the necessary data via APIs for free.
- Commercialised APIs: Encourage banks to expand Open Banking use cases through Premium APIs.
- A multi-party system: Enable multi-party systems to emerge that have a commercial incentive to grow the Open Banking ecosystem through the design of new, flexible frameworks for industry collaboration.
“This report makes it clear that banks, fintechs and regulators need to work together to design new, flexible frameworks and commercial incentives that will support a far wider range of Open Banking use cases,” commented Claire Melling, Head of Bank of APIs at NatWest Group.
“By acting on the recommendations in this report, we can enable Open Banking to reach its full potential and, ultimately, deliver new and enhanced propositions that will improve customer choice and experience.”
In its latest proposals for changes to the Payment Services Directive (PSD3) the European Commission highlighted changes were needed to Open Banking APIs.
These proposals to Open Banking aim to help foster innovation through more sophisticated APIs which will aim to enhance functionality to move to more premium APIs.