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UK lenders make strides with Open Banking, but fintechs still frustrated

Nearly 18 months after the launch of Open Banking, the U.K.'s biggest banks have made significant progress in opening up customer data to financial technology companies and other third parties, according to experts both inside and outside the banking sector.

But some fintechs are frustrated with the progress of the Open Banking project, claiming that repeated technical glitches and outages at big-name lenders mean that the financial services revolution they had been promised has yet to materialize.

Open Banking came into effect in January 2018, and requires banks to open up customer data, with permission, to third-party financial services providers. The overarching aim of the project is to boost competition in financial services and reduce the dominance of a handful of large banks.

Data sharing is achieved through an open API, an interface that allows banks and third parties to communicate with each other securely. In practice, this means that a customer of a traditional bank could access fintech products and services directly from their customer account — and that the fintech in question would be able to access their data to, say, make a decision about granting a loan or provide a product that uses bank account data to help the consumer manage money.

Nine banks are participating in the Open Banking project: HSBC Holdings PLC, AIB Group (UK) PLC, Bank of Ireland, Barclays PLC, Lloyds Banking Group PLC, Northern Bank Ltd. (the Northern Irish unit of Danske Bank A/S), Royal Bank of Scotland Group PLC, Nationwide Building Society and Banco Santander SA.

Commendable progress

The Open Banking Implementation Entity, the body set up by the U.K. Competition and Markets Authority to create technical standards and shepherd banks and fintechs through the process of implementing them, has in the interests of transparency published unedited data on its website since October 2018 about the progress of participating banks. This includes information on technical glitches and outages of Open Banking functions, both planned and unplanned.

According to OBIE, the availability of Open Banking APIs never fell below an average of 96.97% across all participating banks in the first quarter of 2019.

Louise Beaumont, co-chair of the Open Banking and Payments working group at TechUK, an industry body, believes that banks have made some commendable progress in getting past tech teething problems.

According to analysis from Yapily (a fintech that Beaumont advises), there have been some considerable improvements in Open Banking availability in the past six months, she said in an email. Using monitoring software that simulates the experience of a fintech trying to access a bank via its API, Yapily has discovered that Open Banking availability is "commonly seen from 99% to 100% across most of the APIs," Beaumont said.

Fintech frustration

But this is not how Greg Carter, CEO of British fintech Growth Street Exchange Ltd. sees it. Open Banking availability has been patchy, and outages at a handful of major banks have led to lost business opportunities, Carter said in an interview. Customers have become frustrated trying to access Growth Street's services (loans to small and medium-sized enterprises) via their original bank account, and given up, he said.

Open Banking was only available 83% of the time in the first quarter of 2019, amounting in 5,000 hours of down time, according to analysis released by Growth Street earlier in May. This compares with an average of 95% of the fourth quarter of 2018. Growth Street claimed the worst performer was HSBC, whose Open Banking services was unavailable for 1,700 out of 2,000 hours in the business quarter thanks to a series of outages. Nationwide recorded the greatest improvement in availability during the period, at 96% compared with 78% in the fourth quarter of 2018.

Industry body responds

OBIE hit back at Growth Street's analysis of their data, with a spokesperson calling it "misleading and false" in an emailed statement. The discrepancy between the Growth Street data and OBIE's is largely because the former includes downtime that banks had scheduled but which did not take place. HSBC also rejected Growth Street's analysis. A spokesperson for the bank said in an email that their service had been available for 99.3% of the first quarter.

Commenting on the research, and their experiences of Open Banking, a Nationwide spokesperson said in an email: "It has been a hugely challenging and complex undertaking over a short period of time for something of this scale... Nationwide continues to work extremely hard to ensure our members have the choice to use this service with trust and security being paramount."

But fintech executives still report bad experiences, such as Christoph Rieche, CEO of SME lender iwoca Ltd.

"Integrating with the banks has not been an easy ride and we continue to see unnecessary disruptions. For example, one bank recently made a technical change which meant that we had to turn off the service for nearly a week as it became unfit for purpose. This meant that no new customers from this bank were able to share data through Open Banking with us," he said in an email.

Some 55% of iwoca customers eligible for Open Banking have attempted to use the service, Rieche said.