One year into the roll-out of "Open Banking" — UK legislation mirroring PSD2 (Payment Service Directive 2) that requires the largest UK banks to provide standardized data access to authorized regulated organizations — has so far been met with muted impact on the largest deposit franchises in the UK. But the challenger banks are coming.
Open Banking was seen as a net positive in the consumer banking industry as a way to drive innovation and level the playing field among incumbent and challenger banks alike, intending to benefit both consumers and small businesses. Moreover, by lowering the data rail friction between banks and third parties, many expect to see aggregators and fintech firms leverage APIs to provide new products and compete for deposit share over time. While there has been meaningful growth in approved third parties that can access the standardized Open Banking API, UK's largest incumbent banks have adapted and shown little desire to be caught off-guard by the shifting landscape and competition.
Bloomberg reported that a survey of 50 executives in the UK — conducted by Pepper, a mobile bank owned by Tel-Aviv-based Bank Leumi Le- Israel Ltd — found that "a majority said the legislation will spur technology giants such as Amazon and Google to unveil their own retail banking services within the next five years." The survey also found that more than 82% of executives polled think their organization is falling behind rising fintech challengers such as Monzo Bank, Starling Bank, and Revolut.