A Transatlantic View of Open Finance Developments
We've joined forces with MX Technologies Inc. to examine the transformative journey of Open Banking and Open Finance across the UK and the United States
Our paper delves into the evolution, current state, and future trajectory of consent-driven data sharing in these two major financial markets, and underscores the critical role of standardised API technologies in creating secure, efficient, and inclusive financial ecosystems.
Key takeaways:
Historical Context and Evolution:
In the UK, the impetus for Open Banking emerged post-2008 financial crisis, driven by government initiatives to enhance competition and consumer mobility in retail banking. The Competition and Markets Authority (CMA)'s mandate led to the establishment of the Open Banking Implementation Entity (OBIE), fostering a secure, consumer-friendly data sharing environment. Today, over 10 million UK consumers and small businesses leverage this technology.
In the US, account aggregation services have been operational for over 25 years, evolving from screen scraping to secure API integrations. However, consumer data rights have been primarily market-led, resulting in a fragmented landscape. The CFPB's recent efforts, particularly under Section 1033 of the Dodd-Frank Act, aim to establish standardised consumer data rights and propel the transition towards Open Finance.
Current Landscape and Progress:
The UK has witnessed a significant uptake in Open Banking services, with Payment Initiation Service (PIS) and Account Information Service (AIS) users growing year-on-year by 61% and 27% respectively (as of June 2024). The ecosystem contributes over £4 billion annually to the economy and supports nearly 5,000 digital jobs.
The US sees robust organic adoption of Open Finance APIs, with 76 million consumer accounts shifted to the Financial Data Exchange (FDX) API by April 2024. The CFPB's proposed rulemaking on personal financial data rights aims to clarify data standards and enhance competition, with final rules expected by Autumn 2024.
Looking to the Future:
In the UK, post-Brexit regulatory adjustments are shaping a unique data protection landscape, with ongoing legislative efforts to bolster Open Finance and Smart Data schemes across various sectors. The new Labour government’s initiative includes revisions to the Data Protection and Digital Information Bill, aiming to improve processes and enhance data access rights and portability.
Additionally, financial institutions face the imperative of assuring compliance with the Consumer Duty, which necessitates robust data frameworks to ensure fair treatment of consumers and better outcomes in financial services.
In the US, the CFPB's regulations will likely catalyse broader implementation of Open Finance standards, starting with key financial products and extending to diverse financial services over time.