In the 2014 Autumn Statement, the Chancellor announced a commitment to the launch of a call for evidence on how to implement open API standards and the use of open data in the UK consumer and SME banking market.
Earlier in the year, HM Treasury commissioned the Open Data Institute, which engaged Fingleton Associates, to explore how competition in UK banking could be affected by more widespread use of APIs. Our report, entitled Data Sharing and Open Data for Banks, has been published by the government. Alongside the publication is a commitment to launch a Call for Evidence in the new year:
“taking forward some of the recommendations in the report and, in particular, reviewing how an open API standard could be delivered in UK banking. This will set out the government’s aim for the UK to lead the world in open access to bank data via APIs, for the benefit of consumers.“
We argue that deployment of APIs would offer substantial potential for increased competition in the UK banking market, and would enable innovative, value-added tools.
An Application Programming Interface (API) enables computer programs, databases and apps talk to each other. In this context, APIs would mean that banks could securely pass personal account data, with the account-holder’s permission, to another entity. Examples of what this would allow include:
- Comparison websites that finds the bank account provider whose charges are best suited to a specific individual’s transaction behaviour.
- Lenders who better understand a would-be borrower’s creditworthiness, and so offer better terms.
- Personal finance management tools that aggregates data from a number of accounts and make suggestions for appropriate products or changes in behaviour.
Conversely, UK banks’ limited adoption of external APIs may constrain competition, especially in the consumer and SME banking markets. There is an information asymmetry which means that banks’ customers may not know what their bank accounts cost them, impeding their ability to shop around. Alternative lenders may not have access to the same information about a borrower’s creditworthiness, so are less able to compete with banks on the pricing of loans. Likewise, because consumers’ banks have privileged information and access, competing providers of other financial products may be unable to overcome the barriers of a bank account’s gateway product status.
In the report we make the following recommendations:
- Banks should agree on an open API standard for third party access
- Independent guidance should be provided on technology, security and data protection standards that banks can adopt to ensure that data sharing meets all legal requirements
- There should be an industry-wide approach established to vet third party applications and publish a list of vetted applications as open data
- Standard information about PCA terms and conditions should be published by banks as open data
- Credit data should be made available as open data