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Open banking proposals ‘spell the end of big, dumb mortgages’

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  • 03/03/2021
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Open banking proposals ‘spell the end of big, dumb mortgages’
The end of generic mortgage products has moved a step closer after UK Finance set out proposals to enable the transition to open banking.

 

The banks’ trade association proposed creating a new company which would oversee the functions of open banking for the long-term.

The proposed new organisation could begin operating as early as next year.

“This spells the end of big, dumb mortgage products manufactured without consideration for the end consumer,” said Dr Louise Beaumont, chair of the open finance and payments working group at TechUK.

“Mortgages will be bespoke for the individual, based on what data they choose to share with the provider. And the products will flex, as the individual’s circumstances change, again based on the flow of data,” she said.

UK Finance’s proposals follow an initial period of work by the Open Banking Implementation Entity (OBIE), which was funded by the big banks. OBIE was a response to a Competition and Markets Authority order in 2016 based on the banks not competing hard enough for customers’ business. 

The nine lenders involved, known as the CMA9, were Allied Irish Banks, Bank of Ireland, Barclays, Danske, HSBC, Lloyds, Nationwide, NatWest and Santander.

Banking technology provider Yobota also welcomed the UK Finance paper — and urged the banks to address legacy system issues to support the transition.

“This is a major step forward in our journey to open finance. Mortgages, pensions and insurance products all stand to benefit from increased competition to enable consumers to make more informed decisions regarding their personal finances,” said Ammar Akhtar, chief executive at Yobota.

“We must expand the open banking model to the corners of the market that continue to be riddled with inefficiencies,” he said.

“I hope to see more emphasis on helping financial services companies bring their underlying technology into the modern era. Without modern core systems, the industry will be stuck building layers of apps on top of existing legacy systems,” Akhtar added.

 

Fitness apps and online retail data

The industry’s journey to open banking will likely move through the stage of open finance, then open data.

Open finance is where data is sourced from financial organisations like insurers. Open data brings in information from a wider range of sources such as fitness apps or online retailers.

“Open banking is a world leading innovation with huge potential to make our financial lives much safer and more convenient,” said a spokesperson for UK Finance.

“It provides a secure way for financial information to be shared across different finance providers with customers’ consent. This can enable services such as account aggregation, where customers can see all their accounts with different providers in one place, as well as the ability to make direct payments through a third party provider from a bank or building society account.

“Open banking can also facilitate services that help customers shop around for banking and credit services, or to support lending decisions through credit analysis,” the spokesperson said.

The move is expected to result in better outcomes for customers specifically by stimulating competition.

“Open banking has a rich and valuable future, building from humble beginnings in the banking sphere to open finance and through to the rich, sunlit uplands of open data. This means an ever-richer suite of data to pull into ever-more valuable services — hyper-personalised, predictive and pre-emptive services,” said Dr Beaumont.

“It’s time to to unleash your imagination and think about the data you need to create genuinely valuable services and to leave lumpen, inflexible products behind,” she said.

 

New enabling organisation

 The UK Finance paper, Open bank futures: blueprint and transition plan, lays out ideas for structuring and funding the new enabling organisation and describes the potential scope of its activity. 

Its proposed overall purpose is, “to help consumers, small business and corporates to benefit from an efficient, safe and reliable open data and payments market, and to provide a platform to support financial institutions to meet regulatory requirements.”

The paper sets out the proposed functions of new entity, such as holding and maintaining technical standards, providing core services such as a help desk and directory, enabling regulatory compliance, acting as an effective point of escalation and resolution, and advocating for open data and payments.

The organisation’s key performance indicators are outlined too.

They are: widespread adoption of open data and payments propositions, highly secure and reliable provision of services, keeping the UK at the forefront of innovation in open application programming interface (API) propositions, ensuring those in vulnerable situations are able to experience equal benefits of open data and payments propositions, and preventing poor customer outcomes.

 

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