Cultivating Open Finance momentum: UK fintech collaboration

Fintech, comprising both fast-growing companies and investment in and use of technology by incumbent financial institutions, is the single area in which the UK is most globally competitive. The UK financial technology sector punches significantly above its weight – ranking second only to Singapore in terms of both percentage of GDP and investment per capita, and only behind the US in total investment in fintech companies. Any serious long-term growth strategy for the UK economy will therefore lean heavily into this world-leading position.

At the same time, the UK fintech sector faces a variety of well-documented challenges. These range from access to talent, global competition, regulation that keeps pace with technological change, the constraints of a relatively small domestic market and a persistent London-centricity which overlooks the thriving ecosystem that exists outside the ‘Silicon Roundabout’.

Yet arguably the biggest single obstacle facing the UK fintech industry are the dual issues of fragmentation and coordination. 

A lack of connectivity has been a persistent challenge for the sector. Financial services is an increasingly fragmented market. The UK fintech ecosystem mirrors this. Most fintech businesses create solutions oriented around a narrow slice of the market. In this specific way, the situation is reminiscent of the US technology sector in the late 1990s, when significant innovation was taking place but companies were focused on solving problems within their own verticals. 

Our organisation, the Centre for Finance, Innovation and Technology, was created with this challenge squarely in mind. We were a recommendation of the Kalifa Review of UK Fintech, a landmark review of the steps required to maintain the UK’s position as a world leader in fintech innovation. This called for “a new kind of organisation” to act as the “missing organisational link” that could conduct “a coordinated approach to fintech market development”.

To tackle the challenges of fragmentation and coordination, we decided to structure our efforts around convening time-limited coalitions of experts from finance, technology, academia, and policymaking to tackle specific challenges facing the financial services industry. 

And our inaugural coalition focused on the challenge of Open Finance – applying Open Banking-style secure data-sharing to a broader range of financial information such as savings, investments, insurance, mortgages, credit scores, pensions). This a concept which can solve the exact challenge of how the datasets relating to different financial products each sit in their own separate walled garden, with each environment siloed off from the next. Successfully breaking down these barriers promises enormous potential benefits for consumers and SMEs alike.

In February this year, we published a Blueprint Report marking the end of the first phase of our Open Finance Coalition’s work. One of the key conclusions was that automation of data would provide better decisioning by lenders and more SMEs getting access to credit. The report also set out the priority next steps for driving forward the Open Finance agenda and provided recommendations to the UK Government on how financial data can be safely unlocked to improve SMEs' access to credit, among a range of other use cases. 

But this was only the first phase. There remained much work to do to make Open Finance a reality. So in April this year, a new industry-led taskforce was created, chaired by CFIT, with a mission to unlock the full potential of Open Finance and advance a number of the key recommendations laid out in the Blueprint Report

The taskforce is tightly focused on the question of how Open Finance can improve the volume of commercial lending to small and medium-sized businesses. It has a mandate to identify and prioritise more use cases for Open Finance, data sets to be unlocked and APIs to be created in order to facilitate better SME finance availability. It will also identify commercially viable approaches to incentivise businesses to securely share their financial data, before considering appropriate next steps towards implementing any agreed recommendations. 

Holding its inaugural meeting at the Innovate Finance Global Summit, the taskforce is now in the midst of a sprint of weekly meetings, ending this month, to progress its work at pace. It will then develop a set of proposals to be fed back to the Economic Secretary to the Treasury of the next UK Government.

Roughly mid-way through this sprint, we are seeing real momentum. The taskforce is developing new principles for identifying and accessing new or currently underutilised data sources. These factor in considerations such as data quality; consent; the risk of duplication between data sets; the different timeframes within which it’s possible to open up private versus publicly held data; and where private alternatives might exist to high-quality public datasets, such as HMRC’s VAT data.

Taskforce members have also provided detailed responses to a survey on financial incentives, and the different models that exist for encouraging SMEs to share their financial data with data providers. Work is now ongoing to flesh out one of the commercial models discussed, in which an aggregator brings together many different data sources which are consolidated and provided to the lender.

These are among the technical questions which need to be answered if our taskforce of leading financial institutions and technology companies, and the UK fintech industry as a whole, is going to successfully move the dial on Open Finance. 

Make no mistake, the timeframe we have set for ourselves and our members to lay out the next set of recommendations and forward steps is an ambitious one. But at a time when we have widespread industry buy-in, a broad political consensus behind the importance of the issue and other countries seeking to take the UK’s fintech crown, it’s critical that we maintain the momentum behind Open Finance.

Boosting SME lending volumes is just one example of how Open Finance represents the next great opportunity for our economy. But, through the work of our taskforce, we hope that enhancing SMEs’ access to finance through improved data-sharing will also be the next stepping stone on the UK’s journey from Open Banking to Open Finance and then onwards to Open Data.