For years, the United Kingdom has sought to cultivate an ecosystem in which financial technology can thrive. Brexit left things less certain. But the effort—especially around the U.K.’s proposed Open Banking Standard—is still worth studying, particularly as banks and financial technology companies in the United States navigate the best ways to interact and collaborate.
There are, of course, important differences between the United States and United Kingdom’s financial landscapes. For one, ensuring technical standards across the tens of thousands of U.S. financial institutions presents huge interoperability challenges. Granted, this is also relevant across Europe, but few countries match the breadth of the institutions in the United States. But the United Kingdom has made shaping a consumer-friendly, secure, and democratized financial ecosystem a priority; innovation in financial services and proper stewardship of consumer data are so important there that other governments—including the United States—are taking steps to protect and encourage engagement on them in their own countries.
The so-called Open Banking Standard, the result of collaboration between the public and private sectors in the United Kingdom, is essentially a framework to allow customers, businesses, and developers to access financial data that banks have historically held in their sole possession.
Last September, the U.K. Treasury Department convened a diverse set of stakeholders as part of the Open Banking Working Group (OBWG). The OBWG brought together representatives from banking, data, business, and consumer groups to develop a new, uniform standard for how consumers and businesses access their financial data. To guide these standards, OBWG released a 148-page report outlining proposals in three overlapping areas: rules that define how data should be recorded; specifications that inform the design, development, and maintenance of bank APIs; and security specifications that set a common standard for underlying data and mechanisms for accessing it.
Under the new rules, which are expected to go into effect in the coming years, traditional financial institutions, which currently control access to financial data, will be required to allow consumers to permit any third-party financial services provider to access their accounts, among other consumer-friendly measures. This shift would also provide a major boost to fintech innovation in the United Kingdom by leveling the playing field. It would support innovation and prevent established institutions from engaging in anti-competitive activity by manipulating access to data.
These dynamics are highly relevant to the United States. At Plaid, we’ve worked to lower the barriers to entry in financial services through our technology platform, which covers thousands of domestic financial institutions. Meanwhile, regulatory agencies like the Office of the Comptroller of the Currency have taken up the issue of just what responsible innovation looks like, and how to provide a regulatory framework that doesn’t dampen innovation or competition.
But a level playing field in the United Kingdom would not necessarily translate to the United States. So while it’s tempting to focus on just how the United Kingdom will make an open banking standard a reality, it’s essential to acknowledge that it wouldn’t work to simply import the details due to the key differences in our markets.
A bit of skepticism can be helpful when it comes to setting expectations for one standard to rule them all. After all, standards tend to beget new standards.
That said, there is much to be said for the collaborative approach and speed with which U.K. government and industry have set out to clarify the relationship between traditional financial institutions and the fintech sector. The deliberate process that the U.K. has put in place to develop and implement its data standards deserves credit for bringing a diverse group of stakeholders together as a first principle.