3 lessons for open finance
As the UK and EU authorities consider how to achieve open finance, we share key learnings from the roll-out of open banking.
Since we were founded in 2016, TrueLayer has been plugged into the development of the regulatory regime for open banking. As a result, we were one of the first companies to be regulated as a Payment Institution with permissions to provide both account information and payment initiation services. Now, we are engaged in regulatory discussions across the globe to help power the next wave of financial innovation — open finance.Open Finance empowers consumers to securely access their financial data beyond bank accounts, extending to savings, mortgages, investments, pensions, and insurance.It's exciting for a number of reasons, most importantly, it will give consumers increased control over their financial lives and inject competition and innovation into financial sectors that have stood still for too long.The FCA fired the starting gun for open finance in December 2019 with its . We were thrilled to be part of the industry working group that developed the principles for consultation. You can read a summary of our response 📥.We believe open finance can build on the successes of open banking. It should:
- Start with access rights
- Mind the gap
- Test before making rules
For and our clients, PSD2 and the CMA’s Open Banking initiative were transformational. However, our platform is built for the type of scale envisaged by Open Finance. It’s a logical step for us to build a holistic financial services platform encompassing banking, savings, mortgages, investments, pensions and insurance.The FCA’s Call for Input on Open Finance has been followed by a hugely significant strategy drive by the European Commission, including:
Open finance is based on the principle that the data supplied by and created on behalf of financial services customers are owned and controlled by those customers. Re-use of these data by other providers takes place in a safe and ethical environment with informed consumer consent.
- a — looking at a single market for data;
- a — developing a vision for realising the benefits of payments across the EU; and
- a broader .
Individuals should be further supported in enforcing their rights with regard to the use of the data they generate. They can be empowered to be in control of their data through tools and means to decide at a granular level about what is done with their data.
Lesson 1: Start with access rightsPSD2 gave customers the legal right to use third-party providers to access account information and initiate payments.This right stops banks from prohibiting the use of third parties and makes it an obligation for them to facilitate third party access. It is revolutionary.As with PSD2, the legal right for customers to access Open Finance data using third party providers should be front and centre. This will provide the impetus for Open Finance data holders to consider how to facilitate access and create the catalyst for Open Finance innovation.
Lesson 2: Open Finance should address PSD2 gapsThe question of access rights immediately gets us to another hard learnt lesson of PSD2: Defining scope. PSD2 says customers have the right to access account information and initiate payments from accounts — but which accounts?Under PSD2 a customer can access their current accounts using account information services, but not their savings or investments. The limited scope of PSD2 reduces the convenience for consumers.Scope is a fundamental question for Open Finance. Should customers have the right to access all financial accounts via third parties? Savings, investments, mortgages, pensions and insurance? What piece of legislation could accommodate such a wide-ranging right? Is it too ambitious?
Open Finance should start by filling in the unintended scope gaps of PSD2 — bringing other bank accounts into the scope of the access right.Where the access right is extended to other financial service products beyond bank accounts, regulators should be mindful not to leave scope gaps that could impinge on existing or future products and use-cases. This can be assisted through a period of use-case testing, which leads us to the third lesson.