As we begin to bid farewell to the year, and approach the dawn of a new one, it’s important to pause and reflect on the progress we’ve seen in the global Open Finance landscape over the past year. We’ve witnessed a range of significant events, remarkable progress, a few frustrations and – of course – much debate. In this article, we delve into the key developments, trends, and transformative events to have hit the headlines, and look at some of the questions that remain unanswered heading into the new year.
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The long-awaited release of the JROC report in the UK
The release of the Joint Regulatory Oversight Committee (JROC) report in the UK’s Open Banking sector had been highly anticipated. The April release was seen as a significant source of renewed momentum and hope for the industry. The report offers a detailed roadmap for the regulatory landscape over the next two years, with one of the key highlights being the ambitious goal of making Open Banking payments a strong competitor to card payments, with a focus on retail payments. The report outlines concrete steps, including establishing a framework for fraud data collection, and supporting multilateral agreements for variable recurring payments (VRPs) to create a viable commercial model.
The report addresses ecosystem sustainability, emphasising the importance of a commercially sustainable infrastructure and innovation incentives. It places a bet on premium APIs like VRPs and data APIs to drive innovation. While the report mentions improvements in API performance and error message reporting, some have argued that there is a lack of detail. However, it’s clear that premium APIs play a crucial role in the envisioned ecosystem.
The report also provides insights into the design of the future entity governing Open Banking. It aims for broader representation and funding sources, with all banks contributing to core activities. Other funding options include “pay as you go” models and collaboration with foreign governments, ruling out funding through the FCA levy.
In terms of the long-term regulatory future, the report expresses optimism about Open Banking’s future in the UK and outlines 29 actions to ensure scalability and alignment with Open Finance. The report mentions that the Data Protection and Digital Information bill, currently in parliament, will grant the powers needed to create smart data schemes, including Open Finance. While the bill is still in the early stages, it is expected to proceed as described, potentially bringing significant changes to the industry.
Increase in adoption: Connected accounts and API calls
When Open Banking came into play, it was expected by many that the industry would see a j-curve adoption. After initial slow growth, this year has shown signs of significant progress through the increase in connected accounts and monthly API calls.
As of August 2023, according to an openbank.org press release, the UK had passed a significant milestone of 11.5 million monthly payments across 4.2 million active transacting customers. At the time, year-to-date data showed over 100% year-on-year growth, with the total number of connected accounts having surpassed 7 million.
The biggest driver of this adoption was single domestic payments, accounting for 10.5 million of the transactions. The three biggest use cases contributing to these transactions include: account top-ups; credit card bill payments, and ecommerce transactions. This adoption has demonstrated the convenience and efficiency that open banking brings to personal financial management, and with vendors able to confirm receipt of funds before dispatching goods it has enhanced financial security.
With VRPs considered as one of the major potential growth drivers for Open Banking, it is worth noting that VRPs also experienced significant growth, with 872,000 transactions in July, representing a notable 28.7% increase from the previous month. This has continued to grow with Truelayer reporting one million VRPs in a single month in October.
In the US it is estimated that there are about 90 million connected accounts. In October 2023, the Financial Data Exchange (FDX) reported over 65 million users of their API, boasting an extra 15 million since May of this year. While numbers are difficult to determine, it is estimated that there are thousands more accounts using third-party services that are scraping account information, representing significant potential for growth if the CFPB’s proposed rule is finalised and these services migrate to API-based data retrieval.
Brazil is arguably the market showing the greatest progress in Open Finance with their four-phased approach. Where the UK had initially been seen as providing a blueprint for Open Banking, Brazil raced to five million connected accounts five times faster than the UK.
The most notable feature of the Brazilian ecosystem is that of Pix – the government-mandated open payments system. Adoption of this instant payment method has surpassed expectations and according to a UOL article in April, Roberto Campos Neto, the President of the Central Bank of Brazil, reported that Pix set a new record with a staggering 168 million transactions in a single day. This is a major success for the country in terms of digital transformation.
From an Open Finance perspective, according to the Banco Central Do Brasil, more than 37 million data sharing consents have been received and more than 1 billion API calls are made per week.
The USA’s CFPB proposes a new ruling
In October we saw the Consumer Financial Protection Bureau (CFPB) propose a new ruling for Personal Financial Data Rights. This ruling is proposed in order to enforce the provisions of section 1033 within the Consumer Financial Protection Act of 2010 (CFPA). The proposed ruling aims to mandate that financial institutions provide consumers and authorised third parties with specific data pertaining to consumer transactions and accounts. It also outlines responsibilities for third parties that access consumer data, including essential privacy safeguards. Furthermore, it establishes fundamental criteria for data access and encourages the development of equitable, transparent, and all-encompassing industry standards.
The proposed ruling would ensure all banks allow consumers to share their data upon consent via API, bringing an incumbent-desired end to screen scraping. However, it is proposed that incumbent banks will not be permitted to charge aggregators for the use of these APIs.
The primary obligations of data providers include:
- Ensure the availability of all transactions from the previous 12 months, including the most recent card authorizations.
- Include any information on fees, yield, or rewards that is accessible.
- Provide essential account verification data, such as name, email, and address (excluding date of birth).
- Establish secure APIs with transparent and standardised documentation.
- Maintain a minimum uptime of 99.5% and refrain from unjustly limiting access.
- Prohibit the imposition of fees for API access or API calls.
Key responsibilities for authorised third parties include:
- Disclose to consumers how data is utilised and processed, as well as their privacy rights.
- Utilise standardised APIs and security models, while keeping written policies in place.
- Refrain from using data for targeted advertising, data resale, or cross-selling (except when consumers have implicitly opted in).
The CFPB has requested public comment by 29 December 2023 and if confirmed, expects to see implementation in a phased approach based on the value of assets under control. While it is the hope that this is passed before the next election cycle, industry experts have highlighted that this is a bi-partisan issue and would be seen as a win for either party.
Some markets start to forge ahead – with or without regulation
Where it has in many cases become the norm that markets are growing frustrated by the slow pace at which regulation is advancing, some markets have seen private bilateral partnerships move ahead of regulation. Some Latin American countries such as Colombia, Mexico and Bolivia have seen their largest financial institutions enter these agreements, with banks offering APIs to third parties. This could pose a risk if regulation were to be released with differing standards to what has been implemented, however it is expected that these bilateral agreements could help shape the standards in an advantageous way for these first-moving parties.
In Mexico, despite the exciting 2018 release of the Fintech Law, there has been slow progress in necessary secondary legislation. Both fintechs and banks in Mexico are however gearing up for the future. Examples include Hey Banco by Banregio, Open Bank by Santander, and Bineo by Banorte, to name a few. Furthermore, international neobanks are venturing into the Mexican market, with Nubank and Uala, two of Latin America’s largest players, demonstrating a keen interest in the potential opportunities. HSBC, recognizing the potential of Open Banking, is poised to leverage it for enhanced credit risk analysis and payment services. In a similar vein, Citibanamex took an early step towards Open Banking back in 2021 by launching its Open Data API. These developments underscore the financial sector’s proactive stance in embracing technological innovations and seizing emerging prospects ahead of regulation.
Countries such as New Zealand have even adopted a more market-driven approach. NZ Payments, the Open Finance standards body has contractual agreements with the four largest banks to implement Open Banking by May 2024, with the next largest expected to follow by 2026. It is expected that the market will determine the most suitable technical standards, along with commercialisation models.
Looking to Africa, South African identity management company TrueID has confirmed one of the major banks has agreed to providing them with an API, indicating Open Finance progress to take place in the form of bilateral agreements between banks and third parties as the FSCA is yet to offer any regulation suggesting otherwise, despite their initial Draft Position Paper on Open Finance. However, it is expected that a sandbox will be released at some point.
In Nigeria, however, the Central Bank of Nigeria has been a key driver of digital transformation in the country, implementing policies that facilitate contactless payments, mobile banking, mobile money, and, most recently, Open Banking. In a groundbreaking move for the continent, in March 2023, Nigeria became the first African nation to institute open banking regulations, under the Regulatory Framework for Open Banking in Nigeria. This is aimed at fostering collaborative partnerships between traditional banks and fintech companies. This regulatory framework seeks to eliminate the need for ad hoc integrations while enhancing interoperability within the financial sector. This new legislation empowers the sharing of consumer account data, which, in turn, facilitates credit scoring, rating systems, and personalised loan offerings. The primary goal is to streamline access to financial services by reducing friction and to bolster security in various financial transactions, including payments, remittances, as well as collection and disbursement services.
From a global perspective, this year has seen numerous major partnerships indicating the financial world embracing the benefits of Open Finance. These cross-continent collaborations are allowing customers more optionality and faster, more secure payment methods.
- Stripe partnering with TrueLayer to enable A2A ecommerce checkout (which includes a chargeback API)
- American Express partnering with Canada’s Nuvei for a Pay with Bank Transfer checkout option
- Mastercard and J.P. Morgan’s pay-by-bank partnership going live in the US after a year-long pilot
- Plaid and Adyen partnering for a pay-by-bank checkout option in North America
Whether markets are adopting a regulatory-driven approach to Open Finance, or whether they are leaving the details to be decided by the market like in the US, these private partnerships indicate that world’s largest fintech companies believe Open Finance will play a major role in their businesses in the future.
Where to look in 2024?
While it is almost inevitable that we will see another year of exciting announcements, progressive partnerships and increased adoption, there are some countries that stand out as markets to keep an eye on.
At the end of 2022, the Saudi Central Bank (SAMA) announced the launch of the Open Banking Lab, aiming to promote innovation and enable Open Banking services. The lab provides banks and fintech companies with a sandbox environment to develop, test and certify their Open Banking services in line with the Open Banking Framework. Open Banking is a part of the Fintech Strategy and falls under one of the pillars of the Kingdom’s Saudi Vision 2030, aiming to make the region a global fintech hub. With an initial focus on Account Information Service (AIS), the second version will focus on Payment Initiation Service (PIS).
Saudi Central Bank is tracking the development of banks and fintechs to ensure what is an imminent readiness to launch Open Banking services.
Having again seen delays in regulatory progress, the once September 2023 release date now remains unclear. Four working groups were established in 2022, with the objective of establishing the Canadian Open Banking framework. Abraham Tachjian – the leader of Canada’s open initiative – was expected to end his tenure in September. In October an extension until the end of the year was announced. A coalition of Canada’s largest fintech companies has in response launched the ‘Choose More’ public action campaign to encourage the federal government to move faster on Open Finance and payments modernization. With other markets making meaningful progress, we wait to see if Canada intends to join the movement in 2024. And no sooner had we written this than the Canadian government published a Policy Statement on Consumer Driven Banking and the intent to introduce framework legislation in the 2024 Budget. So the starting gun has now been truly fired.
In Colombia, a finalised decree was released by the regulator in 2022, providing a formal framework for Open Finance. Banks and fintechs have been moving ahead of regulation for a while, however this decree gave a guideline for what is expected of them and allowed banks to commercialise the use of open APIs. This movement in the market, coupled with a recent announcement for how Colombia plans to imitate Brazil’s Pix instant payment framework, makes for an interesting 2024. Integrating instant payments with Open Finance should lead to new use cases and further adoption in a country that only saw 20% of the population banked in 2020.
In June 2023, the Bangko Sentral ng Pilipinas (BSP), with the backing of the International Finance Corporation (IFC) and the World Bank (WB), officially unveiled the Open Finance PH Pilot. This launch signifies a pivotal moment in the creation of an open finance ecosystem for the nation. The primary goal of this initiative is to empower the unbanked population, especially those without proper documentation, by assisting them in establishing a financial profile and credit history. Over time, this will enable them to access loans and various financial services that were previously beyond their reach. With the pilot in place, it is expected that innovation will continue to prosper in 2024 and beyond.
Looking for more information?
If you are looking for more detailed information on a particular market, head over to Ozone API’s Global Open Data Tracker. If you feel like there’s something missing, we would love to hear your contributions. Get in touch at email@example.com.