In October 2024, P20, a leading voice in the payments industry in the UK and US published the report "Open Banking: Delivering the Opportunities". Open banking has developed enormously over the last 10 years, and the expansion in both the number of users and the variety of uses is set to continue. As open banking becomes an increasingly significant part of our financial system, the importance of ensuring adequate governance and oversight also increases. This report looks at the key questions of what we should look to achieve through open banking, and the roles of government and industry in achieving desired outcomes.

The report features contributions from global leaders in payments including Hogan Lovells partner Roger Tym as well as representatives from Open Banking UK, Bank of America, J.P. Morgan Chase, Mastercard, Payments New Zealand, NatWest, Paysafe, The Clearing House, FIS and Elavon Europe.

Key takeaways

The report covers a range of topics relevant to the future of open banking, making recommendations concerning AML processes, security, mandatory rules, monitoring outcomes, governance, data sharing and financial inclusion. However, three themes in particular recur throughout:

• The need for clear and effective regulation;

• The importance of parties involved in open banking collaborating; and

• How open banking can provide a greater number of consumers with access to more financial products.

Across the experts there is agreement that implementing a clear regulatory framework is vital to facilitate the development of open banking for the benefit of all parties. This should be focussed on promoting positive outcomes for users in ways that also foster innovation. Such rules will need to be flexible given the nature of open banking as an area of constant invention and rapid evolution of products. The aim must be to achieve the maximum protection for customers with minimum barriers to technological and business development, meaning the right amount of standardisation is that which enables effective oversight and reduces barriers for firms and customers to access data, whilst not stifling innovation. Further, payment chains are becoming more complex, involving increasing numbers of third parties. This presents greater opportunities for financial crime, and regulation must adapt accordingly to ensure good outcomes for users in the short term, and preserve the public's faith in open banking in the long term.

Open banking is an ecosystem with a host of public and private actors involved. As such, efforts to improve the system will not be effective unless they are part of a collaborative action. Collaboration is important in a number of regards for open banking, but is particularly emphasised for creating the regulatory framework, and in the context of sharing data. To create effective regulation, government should work with industry to create rules that effectively promote the public interest. Public and private actors will have different perspectives and it is only through understanding both that regulation will strike a balance between protecting customers and facilitating innovation. Building on this, industry and regulators should have an ongoing relationship, working together to anticipate future regulatory needs. The report advocates for the use of sandboxes in this regard, as they allow innovators to test new models in a controlled environment and with regulatory oversight. Concerning data sharing, several of the experts commented that the greater the extent to which industry players can share data with each other and with government entities, the easier it will be to both identify and exclude bad actors, and provide customers with services best tailored to their needs. The form this data sharing should take remains an open question, with some advocating for industry organisations to take the lead, and others for a more regulated central entity to oversee data sharing.

Finally, open banking is enabling far more customers to access financial products and information than ever before. The ability for anyone with an internet connection to engage with open banking means that financial and geographic barriers are becoming increasingly less prohibitive. Open banking can greatly improve offerings for customers by providing them with better access to information. Open banking tools can aggregate information across different payment accounts to inform customer decisions, and can improve the ability of customers to make beneficial choices around which products or services they engage with by making it easier to compare financial products.

Next steps

The intended development of open banking regulation is set out in the Joint Regulatory Oversight Committee's 2023 roadmap, contained in the report: Recommendations for the next phase of open banking in the UK. This roadmap provides that by the end of 2024, the FCA and PRS, if necessary, will consult on matters including mandating data sharing amongst open banking participants, dispute resolution processes for open banking, and messaging requirements in relation to payment status. These consultations have yet to be launched, but those potentially affected should be aware that they are potentially upcoming. Then, in 2025, the Committee will look to implement a rulebook for premium APIs. Any significant developments in this space will be reported on Engage.

Click here to download the report.

If you would like to discuss any aspect of open banking or payments services more generally, please get in touch with Roger Tym or your usual Hogan Lovells contact.

Authored by Dan Park.