A giant change is coming for banking in the UK. Not Brexit, but Open Banking, the new directive that will require the largest UK banks to give third parties access to their data, down to the level of current account transactions.
The directive will come into force in January 2018 – it's part of the second European Payment Services Directive, better known as PSD2 – and such is the scale of the change that finalising it has proved difficult. Even at this late stage many of the exact details are still being worked out by Open Banking Ltd, the group responsible for implementation.
Now, for the first time, it’s possible to get a glimpse of what Open Banking will look like in practice, thanks to a £5 million prize funded by the UK banks. Innovation foundation Nesta has released the names of the 20 successful entrants to its Open Up Challenge, which is funded by Barclays, Lloyds, Santander, HSBC, Royal Bank of Scotland and three Northern Irish banks. The list (which is published in full below) includes an impressive collection of well-known fintech startups, including Solo, challenger bank Tide, due diligence service DueDil and business loans firm (and former Wired Money Startup winner) Iwoca.
Launched in February 2017, the Open Up Challenge is intended to inspire the creation of apps and tools for small businesses (SMEs). Along with cash awards, Nesta enticed fintechs by offering access to a huge trove of anonymised SME banking transactions, giving them a chance to experiment with Open Banking-style datasets in advance of the system’s launch.Iwoca is using this data to build a product that allows businesses to sign up to its services directly from their business bank account – a process that, at present, requires approval from the bank. The business loans startup also plans to start offering bank loan products through its platform, using newly-available information on which companies are eligible for loans. (This kind of banking metadata will also be released as part of Open Banking, along with information, for example, about the location of ATMs.)
“Open Banking gives us the opportunity to access a hugely rich source of real-time data,” Christophe Rieche, CEO of Iwoca, tells WIRED. “It’s liberalising access to data that’s previously been monopolised by banks which have failed to innovate.”
DueDil is using its access to the data to make “an online due diligence passport” for businesses looking to prove their financial credentials. The six-year-old business lets companies do due diligence on each other by building profiles of private firms. But to get data it has to trawl through open public sources such as Companies House, sift through companies’ websites and buy data from credit ratings agencies.
“Inclusion of Open Banking data provides a key component in the form of up-to-date financial health indicators, adding context to existing data and enabling better, faster, more confident decision-making,” DueDil co-founder Damian Kimmelman tells WIRED.
The 20 successful entrants receive a £50,000 cash grant, followed by the opportunity to compete for further prizes of £3.5m. Neither the funders nor Nesta takes equity in the finished products, which will compete for a final prize pot of £2m in September 2018.
“The quantity and quality of the interest we've had in the Challenge shows just how seriously fintechs are taking open banking,” says Chris Gorst, Open Up Challenge prize lead at Nesta. “Financial services are intrinsically about data, [yet] in the UK, huge quantities of customer data sit siloed within the handful of banks that provide the overwhelming majority of consumer and small business current accounts.
“This helps explain the paradox that, while finance creates more customer data than perhaps any other industry, there is relatively little diversity in product offerings and the industry has little reputation for customer-focused innovation.”
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