A convergence of regulations and market developments this year are providing the building blocks that could put the Open Banking ecosystem on a more sustainable path for growth.

With the Joint Regulatory Oversight Committee (JROC) laying the foundation to unshackle Open Banking Limited from the Competition and Markets Authority order, this will enable a more viable funding model and help transform Open Banking into Open Finance, says Stephen Wright, Open Banking Lead at NatWest.

JROC will also help focus attention on the economics of Open Banking by introducing the idea of premium APIs, he says.

“A sustainable economic model will encourage greater collaboration and innovation and expansion of products down the line and really drive improvements in customer journeys,” says Wright.

One area where the industry is already seeing innovation is with Variable Recurring Payments (VRP) and the upcoming commercial pilot for low risk use cases for financial services, utilities and government payments. However, while this shows promise, it is not without shortcomings, Wright says.

“The PSR’s (Payment Systems Regulator) approach is not sustainable,” he explains. “It doesn’t focus on customer experience or value proposition – and you have to look ahead to a Phase 2 as to how we take this forward into higher risk use cases and create the economic model that drives VRP into new propositions.”

The challenge with the current approach is that it is trying to compete with Direct Debits, something that is already well embedded into the payments landscape.

“That’s going to be quite hard to shift,” says Wright. “For new customers it won’t be a problem, and for vulnerable customers, VRP is perfect because it gives them more control. But you will struggle to make massive inroads into a very established Direct Debit base for a service that works for large billers.”

For VRP to really take off, the industry needs to create a model that incentivises all parts of the value chain to innovate.

“Without that you’re never going to get a compelling user experience and value proposition – you need banks and PSPs (Payment Initiation Service Providers) to work together,” says Wright.

The broader regulatory backdrop and the growth in Smart Data schemes is also likely to give the Open Banking ecosystem a significant boost. For example, the UK’s Data Protection and Digital Information Bill (DPDI) will be a potential game changer when it is introduced, says Wright, as it will give much greater visibility into an individual’s financial wellbeing as well as improve access to credit for people or businesses with thin credit files. 

While new regulations will help push the market in the right direction, it is already in banks’ hands to make Open Banking work and allow their customers to share their financial data and tap into the benefits that Open Banking creates, says Stacey Wilkinson, API Growth Manager at NatWest.

“From our perspective as a bank, it’s not about waiting for industry to tell us to do something, we see the value in giving customers the ability to share their bank-held attributes with third parties to smoothen, streamline and ultimately strengthen their digital experiences,” she says.

Underpinning this growing digital ecosystem and the potential for smart data to unlock more personalised and engaging customer experiences is the need for a verifiable digital identity.

 “Digital identity is absolutely fundamental to all of these developments and bank-assured identity is absolutely key,” says Paula Sussex, CEO at OneID.