‘Sink or swim’: Delayed update leaves UK’s £4bn open banking sector in limbo at critical moment
The UK’s £4bn open banking sector faces a “sink or swim moment” as the industry awaits a crucial update on the future of the industry in the coming weeks, a lobby group has warned.
Open banking, which was first rolled out by regulators in 2017 to force dominant high street lenders to open up their customers’ data to third-party challengers, has been touted by the UK’s fintech sector as crucial to boosting innovation and competition in financial services.
The value of the sector in the UK has now swelled to over £4.1bn after a flood of investment and a wave of new firms entering the market, according to new analysis from Coadec today.
The total value of the industry jumped some £1.5bn last year despite a wider downturn in valuations and funding, as venture capital dried up in tricky economic conditions.
The UK was among the first movers on open banking but firms and groups have since warned it is at risk of losing ground to international competitors without more clarity on regulation.
The group of regulators overseeing the sector, made up of the Financial Conduct Authority, Competition and Markets Authority, Payments Systems Regulator and Treasury were expected to lay out the next steps for UK Open Banking over the next few weeks but City A.M. understand the announcement has been delayed.
An announcement was due this Friday but industry figures now say they are expecting an update on the future regulation of the sector later in April.
Open banking implementation entered a “new phase” in January after the Competition and Markets Authority (CMA) determined that the six largest banks in the UK have implemented the requirements of the so-called open banking roadmap.
The speed of movement from regulators on open banking has been a cause of disquiet in fintech circles. A group of top fintechs including Monzo and Wise slammed UK regulators last year for a lack of progress on open banking, claiming the “integrity and potential” of the regime in the UK was at risk.
Coadec doubled down on the warnings today, saying the industry was now at a crucial juncture.
“The growth of Open Banking has been a UK-led marvel. However, we now face a critical sink or swim moment for the industry,” said Luke Kosky, fintech policy chief at Coadec.
“We have seen this industry grow to over £4bn within 5 years and with proactive support and regulation the possibilities for Open Banking are endless.”
‘Spaghetti soup’
Pressure has been mounting on regulators to provide certainty to the sector amid what was dubbed a “spaghetti soup” of regulation by the former chief of an open banking body.
Responsibility for the sector was shifted into the hands of the Joint Regulatory Oversight Committee (JROC) last year, headed by the FCA, CMA, Treasury and Payments Systems Regulator.
Senior officials at the FCA and PSR told City PM they are “committed to the continued development of Open Banking and the JROC has set out a vision for unlocking its potential to support competition and innovation.”
“The FCA and the PSR are working closely with HMT and the CMA to ensure that Open Banking continues its success, is economically sustainable and can scale to future uses. JROC are finalising the report and will be publishing shortly,” they said.
They added that JROC will “set out the actions we intend to take to implement our vision for open banking, including how we’ll work with stakeholders.”