Open Banking updates – February 2023

Future Development Report

The Open Banking Strategic Working Group (“SWG”) has published The Future Development of Open Banking in the UK (the “Future Report”). The Future Report builds on the sprints organised by the SWG (and covered in previous editions of Payments View) alongside almost 200 written submissions from stakeholders. These sprints undertook a gap analysis “between the current and a more optimal future state of the open banking ecosystem”. Interestingly, whilst the evidence from the SWG suggested there were a number of gaps, the Future Report notes that “these gaps and the perception of them are often contested, with stakeholders harbouring different views on their relevance or extent”.

Key points on the successor entity to the OBIE (the “Future Entity”) include the shape of a possible model in that its role could be limited to certain core services (i.e., standards development, MI collation and conformance monitoring), with other services being delivered in a variety of ways either by the Future Entity itself, by other entities, or via the market. The Future Report notes this as providing a “single focused, centrally governed and funded standards body which could be scalable into a centre of excellence for standards development”. The question of the Future Entity’s funding seems to have proven somewhat contentious amongst stakeholders, as whilst a sustainable funding model was noted as clearly being required, no clear consensus seems to have been proposed on the optimal approach or how to avoid undue influence being awarded to certain funders as a result.

Gaps in the Open Banking ecosystem identified by the sprints and the Future Report, include:

• Ecosystem Reliability – where whilst improvements have been made, concerns were raised over the inconsistency of API provisioning, a variation in conversion rates and the growing criticality of open banking reliability.
• Fraud – where APP Fraud continues to be the prevailing issue discussed and there were differing opinions amongst stakeholders on how much friction should be implemented into Open Banking processes to combat it.
• Enhancements to the existing standards – with calls from TPPs, some ASPSPs and experts noting gaps in how Open Banking could address end user needs.
• Customer protection and trust – with there being significant divergence of opinion in this space on who should provide any required redress and to what extent further education and communication could resolve the complexities that customers face.
• Extension of Open Banking – with variable recurring payments for non-sweeping use cases (“VRPs”), an expansion of data sharing beyond PSD2 and the wholesale expansion of Open Banking payments to support e-commerce, all being raised. It was noted that there was significant appetite amongst stakeholders to deliver additional payments functionality (such as VRPs) to more use-cases, despite the limited progress so far.

Some detail is also given on possible measures to address the gaps identified, with key priorities being split into (i) short-term (12-18 months), (ii) medium-term (18-36 months) and long-term (beyond 36 months) measures clustered around:

• balancing fraud and friction;
• improving ecosystem performance;
• expansion on VRPs beyond sweeping; and
• promoting further data sharing.

Short-term priorities identified are focused on increasing the quality and granularity of both fraud data and Transaction Risk Indicators (from all ASPSPs and TPPs), calls from TPPs on standards enhancements (regarding status and error messaging, as well as general reliability), and an undertaking an evaluation of VRP use in low-risk sectors such as government or utility payments.

Moving into the medium-term, the Future Report suggests a phased approach to the production of Codes of Conduct and Multilateral Agreements (“MLAs”), in order for firms to better work together to enable a wider range of payments solutions. Interestingly on VRPs, almost two-thirds believed that a testing environment (such as the regulatory sandbox) followed by regulatory intervention would be required to expand VRPs beyond sweeping and 43% favoured capped or zero pricing rather than leaving pricing to the market.

Longer-term ambitions then focus on the scalability of VRPs alongside the possibility of account-to-account payments (with the PSRs thoughts in this area covered in the November edition of Payments View), and possible alignment with the New Payments Architecture.

End of Implementation Roadmap Report (and response) published

If the Future Report on Open Banking is not enough for you for one month then some further interesting reading has also been published in the form of the Charlotte Crosswell’s (outgoing Trustee of the OBIE) ‘End of Implementation Roadmap Report’ (the “Roadmap Report”). In particular, it sets out what Ms Crosswell sees as the practical issues that Open Banking is facing and gives slightly more clarity on the transition to the Future Entity.

The Roadmap Report identifies three stages in the transition of Open Banking – from (i) the current state, to (ii) an interim stage establishing the Future Entity and (iii) the ‘future state’ where the long-term framework will be put in place for the Future Entity alone to continue to develop Open Banking in the UK. Other key dates noted in the Report, include:

• May 2023: which Ms Crosswell notes as being a deadline for Open Banking Limited to (i) make a decision on significant supplier renewals and (ii) circulate a revised budget; and
• June 2023: where a “firm decision” is required on the Future Entity’s “governance, remit and funding model”.

Specific ‘Open Banking ecosystem’ issues are also identified and discussed, from broad concerns (such as developing a long-term vision of Open Banking in the UK), to specific concerns around addressing issues on fraud, consistency and implementation as well as the provision of enhanced MI from certain entities to inform future regulatory intervention.

In the same space the CMA has: (i) published a brief response to the Report (reiterating the need for a long-term regulatory and legislative framework) and (ii) confirmed the appointment of Marion King, previously Director of Payments at NatWest Group and President of MasterCard UK and Ireland, as the OBIE’s new Chair and Trustee.

If you had any questions on Open Banking, please do reach out.