Page 24 - Doing Data Together by The Scotsman

DOINGDATATOGETHER
Doorway to a different way of doing business
Olivia Fletcher on why giving consumers access to their data via open banking is just the beginning, with open finance extending the offering to insurance, investments and pensions
Life is full of three-letter acro- nyms, from the BBC to the NHS. There’s even a three- letter acronym for three- letter acronyms: TLA.
But in the world of data and finance, one TLA is more important than any other: API. Three powerful letters with a rather mundane meaning – application programming interface.
In a nutshell, an API allows two pieces of software to talk to each oth- er, swapping data from one program to the next. When a customer gives permission for an API to be used, their data can be shared between apps and other programs to create a range of opportunities – including “open banking”.
Transaction information con- tained in a bank account can be read by another piece of software, then analysed and aggregated. That cus- tomer can then be offered tailored financial products or insights into how they’re spending their money, to help them budget and save, either by their bank or a technology provider.
The UK enjoyed an early advan- tage when it comes to open banking thanks to the Competition and Mar- kets Authority mandating the intro- duction of open banking standards in 2018 alongside the implementa- tion of the European Union’s Second Payments Services Directive.
In contrast, open banking in the United States has wallowed in industry-led initiatives, without any momentum from financial regula- tors. That leaves the UK in a prime position, alongside Australia, Hong Kong and Singapore.
Edinburgh was well-placed to cap- italise on developments in open banking. With a long, rich bank- ing heritage and recent expertise in
digital technology, the city brings together these two previously dis- parate worlds.
Lockdowns triggered by the pan- demic appear to be accelerating the adoption of open banking by cus- tomers. A Jupiter Research report highlighted how consumers want to monitor their accounts to better understand their financial health, predicting the number of consumers granting permission to open bank- ing APIs could soar from 18 million in 2019 to 40 million in 2021.
For many, getting on top of their finances can’t come soon enough. One in five people admitted that they were more worried about money than health during the early stages of the pandemic, according to a sur- vey by the Open Up 2020 Challenge, an initiative to raise public aware- ness of open banking.
The next step is to extend open banking into open finance. Rath- er than simply giving consumers access to banking data, why not information about pensions, insur- ance policies and investments too?
If you can order your takeaway on Just Eat, turn down your heat- ing with Hive, and listen to the latest tunes on Spotify, why shouldn’t you be able compare insurance cover, pension funds, and savings accounts at the swipe of a finger across your phone screen?
Edinburgh is again ideally posi- tioned to capitalise on the next wave, with its expertise in insur- ance, investment management and
Use of an API can create opportunities for customers in terms of open banking. Picture: Shutterstock
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To fulfil the promise of open banking, customers need to be able to
securely share a wider pool of data
pensions, and its success in winning funding to house the Global Open Finance Centre of Excellence (see panel, right, for details).
There are some early adopters. Members of Scottish Widows’ pension schemes with Bank of Scotland current accounts might have noticed details about their pension pots appearing at the bottom of the screens on their mobile banking apps.
Both brands are part of Lloyds Banking Group, with a lot of Wid- ows’ technological innovations tak- ing place at its digital laboratory in Edinburgh.
The real excitement will come as former competitors wake up and smell the digital coffee, realising they need to collaborate – with each other
and with technology companies – to introduce innovative products and services for customers.
While lockdown might have accel- erated demand, it also slowed down the creation of regulations needed to get open finance up and running. The Financial Conduct Authori- ty launched its “call for input” into determining its role in open finance last December and invited responses by March.
That deadline was extended until 1 October to give financial servic- es providers, technology develop- ers – and consumers – more time to send in responses. Pausing as the UK adjusts to the so-called “new nor- mal” seems like a sensible step.
Yet the direction of travel remains clear. As the Information Technol-