Why Edinburgh is well-positioned to seize open banking opportunity

Life is full of three-letter acronyms, from the BBC to the NHS. There’s even a three-letter acronym for three-letter acronyms: TLA.

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on why giving consumers access to their data via open banking is just the beginning, with open finance extending the offering to insurance, investments and pensions

To fulfil the promise of open banking, customers need to be able to securely share a wider pool of data

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But in the world of data and finance, one TLA is more important than any other: API. Three powerful letters with a rather mundane meaning – application programming interface.

In a nutshell, an API allows two pieces of software to talk to each other, swapping data from one program to the next. When a customer gives permission for an API to be used, their data can be shared between apps and other programs to create a range of opportunities – including “open banking”.

Transaction information contained in a bank account can be read by another piece of software, then analysed and aggregated. That customer can then be offered tailored financial products or insights into how they’re spending their money, to help them budget and save, either by their bank or a technology provider.

The UK enjoyed an early advantage when it comes to open banking thanks to the Competition and Markets Authority mandating the introduction of open banking standards in 2018 alongside the implementation of the European Union’s Second Payments Services Directive.

In contrast, open banking in the United States has wallowed in industry-led initiatives, without any momentum from financial regulators. That leaves the UK in a prime position, alongside Australia, Hong Kong and Singapore.

Edinburgh was well-placed to capitalise on developments in open banking. With a long, rich banking heritage and recent expertise in digital technology, the city brings together these two previously disparate worlds.

Lockdowns triggered by the pandemic appear to be accelerating the adoption of open banking by customers. A Jupiter Research report highlighted how consumers want to monitor their accounts to better understand their financial health, predicting the number of consumers granting permission to open banking APIs could soar from 18 million in 2019 to 40 million in 2021.

For many, getting on top of their finances can’t come soon enough. One in five people admitted that they were more worried about money than health during the early stages of the pandemic, according to a survey by the Open Up 2020 Challenge, an initiative to raise public awareness of open banking.

The next step is to extend open banking into open finance. Rather than simply giving consumers access to banking data, why not information about pensions, insurance policies and investments too?

If you can order your takeaway on Just Eat, turn down your heating with Hive, and listen to the latest tunes on Spotify, why shouldn’t you be able compare insurance cover, pension funds, and savings accounts at the swipe of a finger across your phone screen?

Edinburgh is again ideally positioned to capitalise on the next wave, with its expertise in insurance, investment management and pensions, and its success in winning funding to house the Global Open Finance Centre of Excellence.

There are some early adopters. Members of Scottish Widows’ ­pension schemes with Bank of ­Scotland current accounts might have noticed details about their

pension pots appearing at the ­bottom of the screens on their mobile banking apps.

Both brands are part of Lloyds Banking Group, with a lot of Widows’ technological innovations taking place at its digital laboratory in Edinburgh.

The real excitement will come as former competitors wake up and smell the digital coffee, realising they need to collaborate – with each other and with technology companies – to introduce innovative products and services for customers.

While lockdown might have accelerated demand, it also slowed down the creation of regulations needed to get open finance up and running. The Financial Conduct Authority launched its “call for input” into determining its role in open finance last December and invited responses by March.

That deadline was extended until 1 October to give financial services providers, technology developers – and consumers – more time to send in responses. Pausing as the UK adjusts to the so-called “new normal” seems like a sensible step.

Yet the direction of travel remains clear. As the Information Technology, Telecommunications and Electronics Association told the FCA in its response to the call for input: “From open banking to open finance, there is a clear logical pathway.

“For open banking to truly take place, open finance should become a reality. For customers to get the most from both their data and money, there is a need to extend the scope of open banking.

“To fulfil the promise of open banking, customers need to be able to securely share a wider pool of data including, for example: pension, insurance [and] mortgages.”

What is the Global Open Finance Centre of Excellence?

A concrete example of open finance extending beyond open banking came in June when government agency UK Research & Innovation awarded £22.5 million from its Strength in Places Fund to the Global Open Finance Centre of Excellence (GOFCoE) in Edinburgh.

Work on this began in October 2018 when a consortium was formed between Scottish Enterprise, the University of Edinburgh, FinTech Scotland and the Financial Data and Technology Association (FDATA) – bringing together expertise from the university’s Edinburgh Futures Institute (EFI) and its Edinburgh Parallel Computing Centre.

It aims to shift the balance of financial sector power away from traditional institutions towards consumers, giving them control over who has access to their data, and allowing them to reap the benefits from analysing it.

Professor Jonathan Seckl, University of Edinburgh Senior Vice-Principal, pictured, says: “Using real financial data for social good and allowing governments, companies and people to make better economic and financial decisions is at our heart.

“The centre will be a world-first, providing leadership, co-ordination, research and capability to develop the benefits of open finance and to safely unlock the potential of customer data as a force to improve lives.”

The centre will act as both a “digital sandpit” and an “economic observatory”. The “sandpit” will contain anonymised live data from financial services providers around the world, which finance firms and tech companies will then be able to access to test the products and services they’re developing, and governments will be able to use to predict the impacts of proposed policies and regulations.

The centre’s economic observatory will provide the live data that universities, charities and NGOs need to gain fresh insight into national and global issues – such as climate change – and then suggest evidence-based policies.

Gavin Littlejohn, global executive chairman of FDATA, says the centre will “maintain an important independence, neutrality and grip on ethics, without which it would not be trusted to function”. He adds: “It is becoming increasingly clear that the grand open finance challenges GOFCoE will address simply can’t be solved by working alone.”

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