Four Initiatives Transforming the UK Financial Services Sector

May 26, 2021

Open Banking, Open Finance, Smart Data and Digital Identity promise to completely transform the UK financial sector this decade.

Five people conference at a big table

Financial services are evolving. Customers expect more from their banks in terms of the services they offer, the experiences they facilitate, and the relationships they foster with customers as well as with other banks and third-party applications.

Four key initiatives have made their mark on financial services: Open Banking, Open Finance, Smart Data and Digital Identity. These have changed the playing field for banks and have raised the expectations of customers. 

Open Banking 

Much has been written about Open Banking (OB), now in its fourth year of being used by 3 million people in the UK and has been proven to benefit consumers and SMEs to the tune of £12bn and £6bn per year respectively. OB not only benefits the customer, who can potentially access multiple accounts from a single platform, but its introduction is also forcing positive change in banks by pressing them to adopt progressive agile ways of working, focusing on business outcomes rather than projects deliveries. It has also encouraged a freer, more open financial services environment where APIs are built enabling third-party developers to create innovative applications and services. Current use cases remain limited and range from viewing multiple bank accounts in a single app, streamlining housing affordability checks, connecting financial auditors directly to business bank accounts and streamlining accounting services.

Open Finance 

Technology has proven to be a stumbling block for banks when adapting to new reality for financial services. In June 2019, the Financial Conduct Authority (FCA) committed to lead an Open Finance (OF) initiative, complementing OB by covering a wider range of services: savings accounts, mortgages, consumer credit, investments, insurance, and more besides. Earlier this year, the feedback from a Call for Input which took place in 2020 was released, underlining several expected benefits from OF, including more accurate creditworthiness assessments, better understanding and optimisation of someone´s overall financial and tax position, improved competition and more innovative products, and the automation of switches and renewals. These initiatives are based on the principle that financial services customers own and control both the data they provide and that which is created on their behalf.

Smart Data 

The aim of Open Finance is to create a culture within financial services that promotes open data usage, balancing the accessibility of data with the privacy of customers and the rights they have over their data. In the last year, the Department for Business, Energy and Industrial Strategy (BEIS) put forward a review concerning Smart Data, outlining the UK Government’s vision for a data economy. The goal is to unlock the value of data by creating an environment where it is properly useable and accessible across businesses and organisations.

The coronavirus pandemic has cultivated the growth of Smart Data solutions across financial services in the UK. For instance, Smart Data initiatives were used to offer support to businesses forced to close due to Covid-19 restrictions. A solution developed by Tully provided debt support to over 17,000 individuals struggling due to restrictions by August 2020, using data to help users manage their finances in a dynamic and efficient way. Another application, Swoop, reduced the amount of time taken for businesses to apply for the UK Government’s Coronavirus Business Interruption Loan, from 5 weeks to 3 days, by leveraging the user’s financial data to create support packages based on their specific circumstances.  

Digital Identity

All these initiatives tie up with the Digital Identity policy framework. One digital identity can facilitate a smooth and user-friendly experience for consumers through which they can manage their online lives. The technological challenge is immense, but the first steps have already been taken. OBIE has started working on Premium Open Banking standards (premium APIs) which promise to unlock additional value beyond the minimum regulatory requirements, including identity attributes. Currently, financial institutions are sitting on rich KYC datasets used only for internal compliance and can easily be transformed into a business where banks offer identity outside of their regular workload.

A changing landscape

These initiatives are promising. Yet large institutions are like big ships: they need time to adjust speed and change course. While rapid developments in AI and Machine Learning allow data to be analysed in industrial quantities and bring light to consumer patterns, many still struggle with a complex technological architecture and data lost in old systems. While Fintechs are nimble and quick to develop creative consumer applications, large institutions are unable to implement a digital vision where layers of technical systems mirror layers of hierarchy and administrative bureaucracy.

The implementation of Open Banking, Open Finance, Smart Data and Digital Identity will create new winners and losers; the Apples and Nokias and the Netflixs and Blockbusters of the new upcoming and tech-savvy financial sector. Critical Software has twenty years’ experience helping firms building critical systems and leading large-scale digital transformational projects for financial institutions through which they gain competitive advantages thanks to more agile, scalable and personal solutions.

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