Open Banking in the UK is going through a major change. The UK Open Banking Entity (OBIE) – originally set up by the Competition and Markets Authority four years ago to deliver open banking to the UK – is being phased out.
From the outside, OBIE seems like quite the success. The software standards and industry guidelines engineered by the OBIE have been accepted by over 700 participants and more are joining every month. So why replace something that’s obviously working so well?
OBIE seems to be in leadership turmoil. Former OBIE chairman Imran Gulamhuseinwala has been accused of encouraging a culture of bullying and intimidation. The Competition and Markets Authority replaced Gulamhuseinwala with Charlotte Crosswell. Crosswell has a strong fintech background and campaigned on behalf of alternative lenders during the COVID-19 pandemic.
At first, there was some confusion about what role Crosswell was going to play at OBIE, with the trustee joining the organization at a tumultuous time. Not only was it dealing with the damning report on its senior leadership but open banking itself was very much at a tipping point. In hindsight, it seems like she was brought in to close the organization down. But for Open Banking to flourish in the UK, there needs to be something to replace it.
The birth of open finance
The pandemic has transformed consumer finance and spending and significantly bolstered interest in open banking. Some 64% of UK adults are expected to have adopted open banking by the end of 2022.
There are, of course, lingering concerns around fraud and general security. Millions of pounds were stolen through Monzo fairly recently. But generally speaking, the UK is all-in with open banking. Can the regulators keep everything in check as the system continues to build in size and popularity?
The open banking system in the UK was created with regulatory oversight baked in from day one. But the more popular it gets, the more likely it is that the UK’s largest banks are likely to start prioritizing their own commercial interests over the interests of the broader ecosystem.
API-driven innovations such as open banking give people greater agency when it comes to their finances. That stretches past open banking into open finance in general. This is the next logical step in the open banking journey, including mortgages, savings, pensions, insurance as well as banks.
This would count as an extension of the data-sharing principles of open banking. Any organization that takes over from OPIE would need to be ready for this.
Where might open finance benefit debt collections?
According to the Open Banking Organisation (OB), the three criteria for open banking are:
Being able to collate customer debts into one centralized platform would make collections much more straightforward. Transferring funds between credit cards to get a clear picture of your finances would no longer be necessary and it would be almost impossible to allow debts to be forgotten or misplaced. For lenders, the time-consuming assessments that are such a large part of the process would be improved and sped up significantly.
There are some hurdles to overcome. Customers don’t want to be reminded of their finances every time they pick up their phones. Allowing creditors access to your entire debt portfolio might be a bridge too far for some people. And that’s before we get into concerns about how that data could be used, with many would-be adopters put off by the fact they don’t know or understand how their data is being shared and who it’s being shared with.
Tentative adopters also worry that open finance could lead to a world where debtors are constantly hovering over their finances. This is something that both lenders and whatever organization takes over from the OPIE are going to need to work on - letting consumers know their data is not being used for nefarious commercial gains. Once again, transparency is key here.
Is open finance the answer?
Open finance is not magically going to make millions of people suddenly clear their debts. It could give customers and lenders more control and a clear picture of their debts. According to Open Banking For Good, there are almost 13 million people in the UK who could benefit from it as long as collectors use it as a part of customer care rather than harassment - helping them take control of their debts rather than reminding them about their arrears.
Ultimately, if steered right, open banking and open finance could represent a positive sea change for debt collections not only in the UK but globally too. As to who is going to set up to the plate and take the wheel, however? That remains to be seen.