In a bid to spur more competition in the banking sector, Britain’s financial regulators announced plans to establish a new body over the next two years that will promote the use of third-party fintech applications.
The move is aimed at expanding the country’s open banking initiatives and maintaining London’s status as a global fintech hub following Brexit.
Open banking boosts Britain’s Fintech ecosystem
Open banking, which allows third-party firms to access banking data from mainstream lenders to offer customized services like lending and payments, has played a pivotal role in making Britain the third largest fintech market globally, with around 2,500 companies.
Launched in 2018 by Britain’s Competition and Markets Authority, open banking is currently utilized by approximately 7 million consumers and businesses.
The initiative required nine banks to share customer data with external companies, provided customers granted permission.
Regulators are now focused on creating a long-term organization that will accelerate the adoption of open banking and extends its scope to other sectors of the economy.
This effort is aimed at helping London flourish as a global fintech center, encouraging more company listings, and staying competitive with New York and EU financial centers.
The path forward for open banking
In a joint statement, the Financial Conduct Authority and Payment Systems Regulator stated they would be collaborating with open banking participants in the coming months to analyze options for the structure, governance, and funding of the future entity.
The regulators acknowledged that significant progress has been made, but emphasized that more work is needed to reap the full benefits of open banking within retail banking markets and beyond.
According to Marion King, chair of Open Banking Limited, which oversees the nine banks’ compliance with open banking rules, the recommendations from regulators will maintain the momentum in open banking and extend its benefits to other sectors.
With the European Union set to compete with its own version of open banking, Britain is eager to advance open banking to the next stage to attract more fintech companies to set up operations in the country.
Britain’s financial services minister, Andrew Griffith, told the annual conference of UK fintech industry body Innovate Finance that legacy firms often lack the ability to innovate at the pace required to make the most of evolving technology and maintain international competitiveness.
A data protection draft law, which is currently going through parliament, will be employed to place open banking on a sustainable footing, Griffith added.
While the regulators acknowledged that the UK fintech sector is successfully leveraging open banking technology, they warned government and regulators against complacency.
Balancing innovation and regulation
Britain’s fintech sector ranks third after the United States and China, with investment in UK fintech totaling $12.5 billion last year, according to Chris Hayward, policy chief at the City of London Corporation. Hayward emphasized the importance of global competitiveness in the current landscape.
Industry officials cautioned that forthcoming stricter consumer protection in Britain should not hinder fintech players. Janine Hirt, CEO of Innovate Finance, the UK fintech industry body, called for proportionate regulation to strike a balance between innovation and consumer protection.
