As we have continued through our series of Explainer pieces, outlining the major themes within Open Banking, it has become clear that talking about Open Banking within a UK, or even European context is becoming increasingly challenging.
As Open Banking has progressed around the globe, each Government has taken the aims and then used them to find their own variations that will work within their own jurisdictions. This has led to increasing variation in what Open Banking looks like.
As such, we felt it important to give an overview of where Open Banking is within some of the world’s leading nations. As a reference point, we have given a brief commentary on the UK and why it has spread so successfully from the outset.
Clearly at this point progress in different countries has been made at different speeds. Here we have covered the leading nations of America, Canada, Mexico, Australia, New Zealand, Hong Kong, Singapore and Korea. In time we hope to provide updates for other jurisdictions. With the implementation of the second Payment Services Directive in Europe, the European proposition is also nuanced. We will therefore, examine Europe in full in a future study.
- The UK
- Global Movement
- The United States
- New Zealand
- Hong Kong
Much of what we’ll see below has been based on learnings from the delivery of Open Banking in the UK. As we know, the Competition and Markets Authority and subsequent formation of the Open Banking Implementation Entity (OBIE) led to Open Banking going live in the UK in January 2018. Other countries across the globe have therefore had the opportunity to watch and learn from what has worked and what has not.
It is interesting to note, that while many countries have implemented, or are implementing something very close to what has been made live in the UK, there are significant variations. As we’ll note, not every country has mandated that Open Banking been made live. Where the UK has designed Open Banking to focus on current accounts in the first wave, some entities have been more ambitious than this. Moreover, in jurisdictions such as the United States, there has been a reticence for policymakers to become involved. This has led to financial institutions themselves becoming more proactive in their approach to opening up APIs.
What is clear however, is that there is a very clear movement spanning the globe, of states wishing to place more of customer’s data back into the hands of the customer. This has led to Open Banking becoming a global movement encompassing nearly every geographic region on earth. The idea of opening up the finance sector to competitors, lowering costs and offering more value for consumers is difficult to argue with.
Unsurprisingly, in this first wave of countries that are working towards Open Banking, it is the wealthy and developed countries who are moving forward. As a side-note, it will be interesting to watch development in China where the prevalence of Alipay and use of QR codes may lock-out Open APIs. There is also an argument to make for more development in Africa – which does not feature in this roundup due to limited movement – because of the vast swathes of unbanked and underbanked communities. That said, the direction of travel in many of the African states is for the use of mobile payments, and like China, this will make the development of Open Banking an interesting proposition.
Societal and Governmental pressure for the introduction of Open Banking has yet to emerge in the United States. That said, economic actors including banks and FinTech’s have begun to look at the proposed benefits that Open Banking could bring to the US economy.
To that end, a group of US banks and third-party players have formed the Financial Data Exchange (FDX). This grouping will allow for the secure exchange of customer’s data and could work in replacement of any government-backed scheme. The FDX could also prove to be a forerunner to Open Banking in the United States. This new grouping is a subsidiary of the Financial Services Information Sharing and Analysis Center (FS-ISAC) and comprises Bank of America, Citi, JP Morgan and Wells Fargo as well as several large FinTech’s.
What is clear from the creation of the FDX is that many of the banks and third-party operators are making the running in the absence of direction from the regulators. This approach stemmed from a report from the US Treasury in August 2018, which stated that regulators should look to indirectly focus the market and provide guidance based on market experience.
The American market has already intimated that should the benefits be there, they are willing to utilise Open Banking. In a recent survey by Bain & Co, 58% of US bank customers said they would be willing to try a banking product from one of the tech giants.
The Canadian Government has until very recently taken a close watching brief on how Open Banking unfolded across the UK and Europe. It is possible that with little impetus coming from across the border in the United States that they felt it possible to take more a back seat on Open Banking.
That said, over the last six months, there has been much encouragement for proponents of Open Banking across the Americas, particularly in Canada. Earlier this year, the Canadian Department of Finance called for submissions into the adoption of Open Banking, following publication of its consultation. As with other developed economies that have examined the implementation of Open Banking there has been some resistance from the big banks.
From the Financial Data and Technology Association, North American Director, Steve Boms, said:
“Based on Britain’s experience, we know open banking stimulates investment and innovation in platforms and programs that will help consumers improve their financial well-being. Services will be more insightful and intuitive. With more competition and transparency, products will be better priced. Financial inclusion for less sophisticated consumers will improve. Frustration in linking with or switching service providers will be radically reduced. Best of all, if done right, open banking can achieve this all while ensuring consumers’ and small businesses’ risks are properly managed by fully regulated market actors who are prepared to make them whole if something goes wrong.”
The Mexican Government is seeking to lead the way in Latin America on the introduction of Open Banking and has been clear in its reasoning for doing so. The Government is seeking to cultivate an Open Banking standard that takes into consideration financial inclusion, creating and investing in products that benefit all citizens.
A 2016 report concluded that around 57 million Mexicans - close to 60% of the adult population - did not have access to a bank account. Over 90% of the population prefer cash, whilst the World Bank has reported that less than 14% of the population has access to formal savings. The question of inclusion is broader than financial; it’s also about digital inclusion for fair access to services. The Mexican government wants to drive competition with a view to creating new customer propositions, which attracts new users to the digital space.
Open Banking in Mexico is premised on a new FinTech Law which went live in September 2018. This law is wide in scope and covers provisions regulating crowdfunding, crypto-currency transactions and digital payment institutions, and introduces a regulatory sandbox, as well as requiring open access not just for banking but for all financial services.
Open Banking in Mexico will therefore, be broader than the UK and Europe. It will cover not just current accounts but all financial services.
Australia is amongst the front-runners in the race to be the next nation to introduce Open Banking. Their variant of it is has been tied in with the introduction of the Consumer Data Rights (CDR) which will give Australian consumers far more rights over their use of data than has been seen in the UK or Europe. Moreover, the country’s new rules will see Open Banking encompassing utilities as well as finance.
The regulations are currently working their way through the Australian legislature and are set to go live in 2020.
Over the last year, there has been considerable volume of conversation in the Australian media on how CDR and Open Banking will fare once enacted. Much of this has focused on how Open Banking has been received in the UK. The Australians have kept a close watching brief on the UK, and have worked to ensure that consumers are aware of the new changes prior to going live, in part through sustained stakeholder consultation.
Open Banking will commence with the four largest banks opening up their APIs. These are National Australia Bank (NAB), Commonwealth Bank (CBA), Australia and New Zealand Banking Group (ANZ) and Westpac (WBC). This will apply to credit and debit card transactions. Other banks will be phased in over the next year Not unlike the UK, there was a large volume of initial reticence from the banks, with the Australian Banking Authority vocal in its concerns about data privacy and fraud.
Open Banking in Australia will be overseen by the Australian Competition and Consumer Competition (ACCC), with additional supervision by the Australian privacy commissioner.
On Open Banking and the CDR, Federal Treasurer Josh Frydenberg said:
"The consumer data right is a fundamental structural reform that will drive competition and improve the flow of information around the Australian economy. For small and medium businesses, it will allow for more effective budgeting tools that can deal with data in real time and help them manage their cash flow and working capital more effectively than they can do today."
Like its neighbour, New Zealand is also moving quickly to adopt new legislation around Open Banking, with indications that it will be live in the country by mid-2019. At this time, the approach has not been to mandate Open Banking, as it has been in the UK and Australia, but to task Payments NZ with getting the wheels in motion.
In March 2019 the country took a massive leap forward by announcing that it had concluded tests on API technical standards. The trial was conducted by six parties comprising a mixture of banks and third parties.
Commerce and Consumer Affairs Minister Kris Faafoi, who is responsible for bringing Open Banking to New Zealand has worked closely with his counterparts in Australia, frequently travelling for discussions, in order to ensure that New Zealand has the knowledge not only of how Open Banking has progressed in the UK, but also to garner knowledge from the Australian experience.
“An open data economy, where there is easier access to information and knowledge, has huge potential benefits for New Zealand. These include new businesses starting up, more opportunities for research communities, improved policy development, and more efficient delivery of social services like welfare, healthcare and policing.”
Along with New Zealand and Australia, several Asian states have illustrated that they are ready for the introduction of Open Banking. Indeed, an ongoing survey by Finastra has had Singapore at the top of their “readiness” charts. Indeed, in the Asia-Pac region, Finastra has rated Australia in second place with Hong Kong in third.
Singapore has put in the most comprehensive groundwork of any of the countries, with work dating back to 2014. Since then the Monetary Authority of Singapore has published a roadmap for Singapore. This has been further supported by the creation in 2017 of Asian FinTech Innovation Network. The Singaporean Government has preferred to not legislate for the introduction of Open Banking but has encouraged it.
In September 2017, the Hong Kong Monetary Authority (HKMA) launched a new policy proposal to promote different strands of financial innovation including a FinTech Sandbox and the promotion of Open APIs. As part of the HKMA’s “Smart Banking” initiatives, the first roll-out of APIs has commenced. In January 2019, the Joint Electronic Teller Services Limited (JETCO) announced a new marketplace of 200 APIs from 13 banks. The APIs cover product and service information including deposit, foreign currency exchange, loans, investments, insurance and other general banking services. Phase 2 of Open APIs is due to follow in another six months.
Buoyed by the early successes seen in Hong Kong and Singapore, the Koreans have been playing catch-up for the last twelve months. Recently however, they have begun to make significant headway. The financial regulator has announced plans for a Korean interbank payment network between banks and FinTech’s. It is hoped that the creation of the network will help in the launch of Open Banking, which has been touted in the South Asian state.
What we can see from the spread of Open Banking is the idea that consumers deserve more choice and value in financial services and that this is closely linked to control over their personal data.
Their reasons for doing so have broadly been about serving the unbanked or underbanked, and offering far better value for money for those of us that use banking services.
As such, governments are now looking at methods of placing more control of data into the hands of consumers globally. The primary method of doing so is Open Banking.
Few reading this will have been unaware that the UK has been the global leader in the introduction of Open Banking, and that many other countries are watching to the success or otherwise of its implementation. What we have sought to illustrate in the body of this text is the breadth and scale that Open Banking is aspiring to across different parts of the world. We have evidenced above progress in the Americas, Asia and Australasia, while leaving Europe for a separate article.
We look forward to having to revise this article in its entirety as Open banking continues to make waves across the planet.