Leading the way
Imran Gulamhuseinwala, global head of fintech at EY and implementation trustee of Open Banking, tells Peer2Peer Finance News why the new data-sharing rules are set to change the face of financial services…
SINCE its fifteen minutes of fame back around ‘OB Day’ on 13 January, when excited media reports promised the dawn of a new era of high-tech banking, Open Banking has slipped back into the fintech background, accompanied from some quarters by accusations of having been something of a damp squib.
But such claims misunderstand the nature of the beast, says Imran Gulamhuseinwala, implementation trustee of the snappily-named Open Banking Implementation Entity (OBIE) which develops and tests the APIs on which the system is built.
“It’s a long-term play and we genuinely have the potential to change the way that consumers and small- and medium-sized enterprises (SMEs) deal with financial services,” he explains. “But it’s not going to happen overnight and it isn’t going to be mainstream for a period of time.”
So less damp squib, more slow burn. 13 January, he adds, was the start rather than the finish of the process – there are more releases of the OB API standard still to come, and that’s before you even start talking about the adoption rates by banks, the authorisation of third parties and the take-up of new services by consumers.
This sort of timescale may not be what third-party fintechs, eager to get new Open Banking services up and running, want to hear. But Gulamhuseinwala has to balance the interests of all the parties involved, and is less interested in artificial deadlines than he is in getting it right.
“We don’t need to get ahead of ourselves, there is no product launch or fanfare around this,” he asserts. “I want to make sure that the standard works – there are three more implementations to come and each will add functionality and scope.
“Then I need to make sure that the banks implement it, and implement it well – we’re on a journey there. It works but we need to make sure it gets better.”
Open Banking’s big idea is to use APIs to allow fintechs to access customers’ banking records, creating an ecosystem where the banks provide the infrastructure while the fintechs provide the innovative new services to consumers and SMEs. Rather as ISPs provide the back bone connectivity of the internet.
There are a handful of peer-to-peer lending platforms already active in Open Banking, including Zopa and Lending Works. Applications include speeding up loan processing, for example. Where historically some borrowers might have been asked to provide paper copies of bank statements, the Open Banking account information service provider API can be used to access account data directly – which is not only faster but also less hassle for the customer.
In the fullness of time, says Gulamhuseinwala, a whole range of new services will emerge as more third parties sign up. “In the first cohort we’ve got a really good spread – we’ve got overdraft unbundling which will enable customers to get unarranged overdrafts 50 to 90 per cent cheaper than they can through their bank directly.
“We’ve got top-up apps so people can save more, we’ve got sweepers for high-interest accounts. I’m excited about it.”
In the longer term, interest could even spread beyond the conventional financial services sector. “There are a whole bunch of blue chip non-financial services companies whose customers number in the millions, which see the value in interacting with Open Banking,” he states.
He cites mobile phone operators as an example of the kind of business he is talking about: “It could be a game changer that would really spark adoption.”
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Adoption is certainly an issue for Open Banking, as awareness is poor among consumers. One recent survey from CYBG and YouGov found that 58 per cent of UK adults don’t know what Open Banking is, and that 77 per cent say they are unlikely to use it.
But that’s precisely the point, argues Gulamhuseinwala – it’s not awareness of Open Banking itself that will drive uptake, it’s the emergence of compelling new services on the back of it. Open Banking is the app store, but the apps themselves come from the third-party providers. “My vision for the medium term is that people will partly be choosing their banks based on the fintechs that are supporting their proposition,” he predicts.
The OBIE itself was created by the Competition and Markets Authority (CMA) in 2016, as a direct result of yet another enquiry into the persistent lack of competition in the retail banking market – an issue which has been causing head-scratching in Whitehall for several decades. Open Banking is thus the CMA’s latest, and most radical, attempt to finally persuade the great British current account holder and/or SME to shop around more.
“The CMA themselves are on a journey – the traditional way of looking at competition has been to examine market share,” says Gulamhuseinwala. “Do we want to limit that, bring in new players?” But the problem with this approach, he says, is that the new players end up looking just like the old ones. “You end up with more companies, all of them offering the same thing,” he adds.
“But there is another way of looking at competition, which is that you allow new players but also new services. I find that much more interesting.”
The OBIE is funded by the so-called CMA 9, the UK’s nine largest banks and building societies, and part of Gulamhuseinwala’s job is to maintain the organisation’s independence. “The trustee is there to ensure that Open Banking benefits all stakeholders – the consumer, the regulators, the third-party providers and all the banks – not just the CMA 9,” he explains.
There have been hiccups of course – five of those nine top UK lenders weren’t ready to open up their account data on 13 January. One – Santander – has been granted a whole extra year to get its private banking arm Cater Allen Open Banking ready.
Nor have all the banks been unfailingly enthusiastic about granting access to their customers’ accounts – a bank’s most precious data asset – to third parties. NatWest (owned by RBS) chose the day before ‘OB day’ to warn customers that Open Banking might enable hackers to access their money fraudulently – a move hardly likely to encourage them to sign up.
Overall however, says Gulamhuseinwala, the banks are engaging well with Open Banking – even some which are not part of the CMA 9, such as soon-to-be-owner of Virgin Money, CYBG. It has joined several of the larger banks in launching an Open Banking account aggregator app for its customers.
But the landscape has to be allowed to take shape. “At the moment a lot of the resource is going into compliance,” comments Gulamhuseinwala. “But now they are beginning to say ‘What should I do with this to improve my ability to compete?’ And after that it will be ‘What can I do to improve my ability to innovate?’
“When all three of those things [compliance, competition and innovation] are working together, that’s when things will really start to happen.”
Keeping tomorrow’s bigger prize in sight means not rushing things through today, he adds. And that includes the authorisation process for third-party providers. “It’s fundamentally important to Open Banking that only authorised entities can use the APIs.
“The application process is prescribed by the EU [under the PSD2 regulations] and is being implemented here by the Financial Conduct Authority (FCA). The process is robust and intense and it takes a long time.”
How long, exactly? The FCA, he says, began taking applications three months prior to ‘OB day’ but only half or dozen or so third parties were actually approved on day one. “Considering that we have over 100 fintechs who have expressed a strong interest, only a small proportion have come through,” he reveals.
There are currently two or three third parties completing approval every week, he says, and it will take another three or four months to approach something like a critical mass of authorised providers.
Gulamhuseinwala is unapologetic about the timescale. “I am entirely happy with that,” he affirms. “People place a lot of trust in the regulator. My takeaway is that it’s a robust process and they are not just being rubber stamped.”
It may help ease the frustrations of fintechs going through the process to know that Gulamhuseinwala is an entrepreneur himself – he is co-founder and chairman of cheap season ticket loan provider CommuterClub. It’s an experience that taught him that fintech was no flash in the pan, not least because of the way modern modular tech has helped start-up costs in financial services to plummet.
“If I had wanted to start a bank in 2000 I would have been looking at $100m (£74.2m),” he says. “In 2010 it would have been $20m. Now? Maybe $5m.
“Each night, every fintech entrepreneur says a little prayer to AWS [Amazon Web Services] for making it all possible.”
He is also global fintech lead at EY, a role from which he is on secondment to the OBIE. After working with government on the Open Banking working group, the OBIE was a natural move, he says: “I spent a lot of time working with government at EY, helping them get their arms around fintech.”
One of the aspects of Open Banking that everyone is keen to get their arms around now, especially in the wake of the Facebook/Cambridge Analytica scandal, is security. New tech always ignites fears over data security – and never more so than when the data is your bank account.
“Open Banking is designed to give customers control over their data,” says Gulamhuseinwala. “I think that if Facebook had been subject to the regulations we are working to, they wouldn’t be in that situation.
“Security has been put at the very heart of Open Banking,” he continues. “It doesn’t require sharing a user name or password – that gets a big tick. Only authorised third parties can use the APIs, that gets a big tick.
“It’s opt in so customers only use it if they want to, that gets a big tick. And if something does go wrong, there are customer protections in place especially around the movement of payments.”
So Open Banking is coming and even if it takes a bit longer than some of those breathless 13 January headlines suggested, it will be worth the wait and any accompanying hassle, he says. “We are far ahead of anywhere else in the world on this. We are not walking down a well-trodden path and we can’t point to precedents outside the UK. We are the pioneers, and it’s the pioneers who take the arrows.”
This article featured in the June edition of Peer2Peer Finance News. Click here to read the magazine online.