When open banking was first introduced, it was suggested that it would enable both big banks and smaller firms to innovate. However, the founder of Monzo believes there has been zero positive effects of open banking so far.
“The positive effect of open banking on innovation has been nil,” Tom Blomfield, founder and CEO of UK challenger bank Monzo, told The Telegraph recently. “I don’t see any businesses based on open banking in Europe whatsoever.”
The Competitions and Markets Authority (CMA) introduced the concept in 2016. It was also part of EU’s Revised Payment Service Directive (PSD2).
The idea behind open banking is that it would make it easier for customers to pick and choose between providers, whether they be incumbent banks or new FinTech startups.
When it was introduced in 2018, the open banking rules required financial services firms to share their current account holder data through application programming interfaces (APIs).
Supposedly, once users gave their permission, these APIs could be used by third parties such as neobanks and credit reference agencies to provide tailored services to consumers.
But the Monzo founder believes that open banking has not created a fertile breeding ground for innovation from new players in the industry.
“It is imposing massive costs on [challengers] like ourselves to implement standards nobody uses,” argued Blomfield.
He is not alone. Other FinTech startup executives have expressed their fury over constant delays from big banks to implement open banking and for the clunky tools they provide to enable data access.
The CMA replied that there were 200 providers in the UK providing open banking products and that over one million people were using the services.
In early 2019, researchers from PwC noted that customers had been slow to sign up for open banking out of fear of giving companies they were unfamiliar with access to their financial information.
“The idea of open banking was to drive competition and innovation and to give consumers the ability to save money and give them more financial choices, but it’s been overshadowed by fears over privacy and security of personal data,” Andrew Hagger, personal finance expert at MoneyComms, told the Financial Times at the time.
“It was always going to be a slow burn and people need to recognise a real benefit before they are prepared to dip their toe in the water.”
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