Is open banking the right model for the dashboard? The lessons lie more in its struggles than its eventual achievements
With the government’s pensions dashboard feasibility study finally in the public domain, attention is now turning to usable delivery models. Much ink has been spilled in drawing parallels between the pensions dashboard and open banking – a project which enables bank customers to share their banking data with third parties as a means to effective bank account comparisons, virtual aggregation and direct payments.
But the lessons lie as much in the struggles of open banking as they do in its eventual success. Before open banking succeeded, it failed under a programme called midata.
Launched in 2011 with the aim of providing better information and protection for consumers, the government started to work with the industry to give people increasing access to their personal data in a portable, electronic format.
It covered several sectors of the economy, but the government set a particular emphasis on encouraging banks to enable consumers to access their current account data.
Midata was designed to enable consumers to download data and use it on price comparison sites to determine the best current account. The initiative failed. But why?
The largest banks voluntarily agreed to set standards for midata for personal current accounts but did this through a process they ran and did not take fully into account the needs of consumers or third-party providers. Customers trying to compare prices of current accounts using midata had first to locate their account history files on their bank’s website, then download a spreadsheet containing their last 12 months’ transaction information and finally upload it to the comparison site.
Beyond the cumbersome process of uploading and downloading the files, the fact it cannot be used on mobile devices running the iOS operating system is a key limitation.
The number of midata downloads to date is low, not just in absolute terms, but also compared with the number of visitors to the webpages.
The experience provides important lessons for the pensions dashboard:
- Comprehensive coverage with high-quality open standards and an acceptable implementation timetable is unlikely to be achieved through a voluntary initiative;
- Consumers need a clear legal right to access their data;
- A download and upload model is too complicated and long-winded to be used;
- Allowing the major existing providers to set the standards is unlikely to result in the best interests of consumers being met or effectively promote competition;
- Without a clear timetable and independent governance, implementation of any initiative is likely to be delayed;
Unless those receiving and processing the information are regulated appropriately, providers may use data protection or other concerns to limit the data being shared, which could limit the benefits of any initiative in helping customers and improving competition levels.
There, the story might have ended if it was not for the EU’s Payment Services Directive 2 legislation, which introduced a new right for consumers to access their banking data through third-party providers.
Open banking followed via the Competition and Markets Authority as the means to compliance with PSD2. It ordered the nine major banks and building societies to adopt and maintain common API standards which would enable their customers to securely share their data with third parties.
The banks were required to establish and fund the open banking implementation entity, which was tasked with agreeing, implementing and maintaining open and common banking standards to a project plan and timetable approved by the CMA.
The banks also had to make available open data about prices, charges, terms and conditions, together with customer eligibility criteria in the case of loans, for all personal current account and business current account products.
It took 10 months from the formation of the open banking implementation entity to the publishing of the full technical data standards. There were a further six months before the system began, with some of the nine banks and building societies being ready, and others coming on board a few weeks or months after the deadline. There are now over 90 providers offering open banking-enabled services.
Dashboard delivery is harder yards. Open banking standards involve connecting just the nine largest banks with other regulated third parties. The pensions dashboard involves connecting hundreds of pension schemes and providers with a dashboard operated by the Single Financial Guidance Body and, in the future, other private sector dashboards not yet subject to regulation.
There is no compulsion to provide the data, and pensions dashboards will require infrastructure (a pensions finder service) and processes (for consumers to prove their identity) which were not needed for open banking.
Avoiding the mistakes of midata and learning from what worked in open banking delivery are therefore all the more important.
Gregg McClymont is director, policy and external affairs, at B&CE