Open banking and its venture beyond bank data
In the UK, Open Banking has so far focused on making customer bank data more portable and accessible. As we move towards the September PSD2 deadline, all payment accounts will be brought into scope.
Open banking has always had ambitions beyond bank and payment data. It’s a vision of consumers possessing greater control of all personal financial data, in turn driving greater competition across all financial services.
Therefore, in some respects, ‘open banking’ is a limiting moniker. ‘Open banking’ is not just about bank data. It’s also about loans, pensions and mortgages.
‘Open banking’ is now evolving towards ‘open finance’ – giving consumers access to all their financial data.
And it’s the world of pensions that looks most likely to be opened up next.
The logic is sound. The average person in the UK has 11 jobs in their lifetime. That could mean 11 different pension pots to manage and monitor by the time you retire.
The FCA, in conjunction with The Pensions Regulator, has already identified several key issues. These were published in their joint regulatory strategy at the end of 2018.
They include tackling how pensions are looked after and managed, as well as the need to enable consumers to make good decisions in terms of their pension planning.
Anyone who has more than one pension pot knows that managing them is not straightforward. It’s time consuming to keep an eye on them and both their charging structures and performance are complex and sometimes opaque.
You may be able to get better performing funds or lower fees and charges elsewhere. But there is no mechanism for making these kinds of comparisons easy.
So that’s the next frontier for open banking. Or open finance, as we should perhaps call it. Imagine being able to compare your pension’s performance and value in the same way that you compare insurance providers today. A world where all of your pension data is portable and can be instantly judged against every other provider.
It will revolutionise the pension industry. Pension providers will have to become more proactive and competitive or risk disintermediation by the raft of fintechs and other providers shaking up how consumers can more easily manage their money.
Work is already underway in this area. The government’s “pensions dashboard” is specifically designed to create a platform on which savers can easily view and manage their retirement pots.
Already, companies in the industry are showing interest in trying to make pensions data more open and accessible. Last year, PensionBee, a pension consolidation platform, said it was working on integrating with banks and money apps, with users able to see their live pension balance within the money app, Yolt.
While such initiatives are encouraging, they likely impact only a small portion of total savers up and down the country. The game-changer will be the involvement of the larger, established pensions providers, and the opening-up of pensions data more broadly.
The delivery of ‘open pensions’ will likely take time but it will benefit from the experience and regulatory framework that the UK’s Open Banking work has delivered. There are some clear lessons to be learned, some of which – trust, awareness, customer experience all underpinned by a clear value exchange – I’ve discussed before.
It doesn’t end with pensions. There’s scope for the entire financial services industry to benefit from greater access of customer data. Given the scale of such product complexity and opacity, particularly around things like fees and charges, it’s easy to see how a compelling offer to consumers could be developed.
Open Banking is dead. Long live Open Finance.