Open finance uncertainty is stalling progress

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Senior executives at payment firms told The Payments Association that the lack of clear regulatory guidance on open finance means they are struggling to balance the risk of uncertainty with the potential for innovation.

What is this article about? How companies are making strategic decisions on open finance that mitigate the risks while capitalising on the opportunities without clear direction from government.

Why is this important? Open finance has the potential to transform the industry and services it can offer customers, but it is lacking the necessary momentum to be fully embraced by the sector. Firms say that there is not sufficient clarity or collaboration for it to accelerate, but they are still offering open finance services.

What’s next? Payment organisations should see how other firms are getting ahead of the competition on open finance before government guidance is issued.

Seamless integration of banking and payment services, access to expanded customer data insights, and simplified cross-border payments are just some of the many benefits open finance can offer.

“Open finance provides a whole host of opportunities, which expand beyond the banks as data holders, such as enhancements to personalised services like pensions, tax and insurance,” according to Erik Öhrling, director of strategy and operations at Vyne.

He said it can create a data-entry-free checkout and subscription experience, by automatically completing name, address, email, and potentially offer more competitive rates for consumers in relation to utility bills.

However, firms lack guidance from supervisory bodies, meaning they are struggling to navigate challenges such as data privacy, regulatory compliance, and establishing a secure infrastructure to capitalise on these benefits.

“It doesn’t feel like there is a clear owner for open finance,” said Russ Barenboym, head of payments at GBXP. “I haven’t seen the regulatory bodies say ‘we’re going to write the rules and frameworks’ and I haven’t seen the industry say ‘we’re going to do it’.”

However, Chryssi Chorafa, founder and CEO of StarLiX, warned that both government and industry would have to think carefully on scope, guidance, and liability, especially on developing solutions to combat fraud, which is not an easy task.

“Who’s responsible if something goes wrong? These risk factors must be clearly identified and understood,” said Chorafa at a recent Payments Lab roundtable hosted by The Payments Association.

Firms are struggling without a defined framework for the legal, commercial, and compliance elements of open finance. With the right supervisory guidance, open finance could unlock significant economic and social value in the UK.

Firms are hesitant to take open finance risks

Some of the risks open finance poses for payments firms include:

  • Data privacy and security concerns;
  • Regulatory compliance challenges;
  • Reliance on third-party providers;
  • Increased fraud and cybersecurity risks;
  • The need to build and maintain customer trust;
  • System reliability and resilience considerations; and
  • Intensified market competition and disruption.

To mitigate these risks firm should be implementing robust security measures, managing third-party relationships, communicating effectively with customers and maintaining reliable systems.

They should also be fostering innovation to address these risks, such as developing solutions to combat fraud.

Yaprak de Beaufort, head of UK and Ireland strategy and operations at Visa, said: “Good practice is being outcome-driven. The ‘what’ is more important, and the players can evolve with the ‘how’ to implement those outcomes.”

Firms could also take a system-driven approach, where they consider the use cases that open finance could provide, the problems it could solve, and assess the benefits it could deliver to broader society. For example, how could open finance help end-users have a better view of their finances?

Vyne, for example, is doing consumer testing, focus groups, and assessing user experiences. “With every product we build we ensure that it’s benefiting real consumers, not just the businesses that serves them,” Öhrling said.

However, some payment companies are hesitant to progress with open finance. Industry executives are aware of its potential, but in the absence of a regulatory framework, they are stuck in the consideration stage.

“I see plenty of opportunities, which I’m looking forward to in the near future, perhaps not presently. These opportunities can flourish and they could have a positive effect as long as it comes with transparency,” said Chorafa.

Learning lessons from open banking

Senior executives are looking at the lessons learnt from open banking and applying them to open finance to draw parallels in the absence of use cases and official guidance.

“I would love to see what we got right and got wrong on open banking, sit down, and have an honest assessment. Then, we’re more prepared for diving into open finance,” said Barenboym.

In-house payments professionals believe open banking has largely failed to deliver on its promises, citing issues around consumers understanding what it is, how it works, and how it could deliver benefits. Executives said more discussions are necessary on open banking before they push into open finance.

There are also ongoing concerns around data protection and privacy, requiring a strong framework for protecting consumers and accountability mechanisms for stakeholders in data chains.

Clearer, specific guidance on API implementation and collaborative workshopping with TPPs, businesses and the data-holders in relation to open banking could also benefit those offering open finance, according to Öhrling.

Embracing these learnings from open banking could help establish secure, customer-focused, and well-regulated open financial systems, driving industry growth and enhancing the overall financial ecosystem.

Professionals at different firms noted that the industry is also lacking collaboration among key players, which could provide the first steps towards consensus. In the absence of regulatory direction, industry-driven agreements would give firms a platform to continue developing opportunities in open finance.

“Commitment from the data-holders [and] from regulators” is essential, Öhrling explained. “The only way open finance will succeed is if we’re all singing from the same hymn sheet and we’re all bought into the mission to open up finance to give consumers and SMEs access to more competitive, personalised and valuable products.

“The biggest risk is that we, as an industry, lose sight of why open finance is needed. open finance was created to benefit consumers and small businesses, and that has to remain the heart of what it achieves. It should be used to personalise experiences and increase competition not used to only turn a profit for businesses.”

To progress, the UK payments industry needs a clear regulatory framework to drive innovation. However, the payments industry must catalyse these discussions, starting with open industry collaboration.


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