A renowned expert in international banking and payments, Lyddon reveals critical insights into whether Open Banking is fulfilling its intended goals.
Bob Lyddon candidly outlines the mismatch between Open Banking’s promises and actual delivery. In his view, despite making a great PR noise, the claimed success in user numbers is skewed by infrequent transactions, such as annual tax payments processed via Open Banking, rather than regular user engagement. Lyddon identifies that the primary challenges revolve around the insufficiency of real impact, as Open Banking hasn’t significantly distributed deposit bases among more institutions, which was one of its original goals.
During the discussion, Lyddon highlights Open Banking as a state-directed initiative rather than a market-driven demand. Developed post-global financial crisis, it was perceived as an antidote to banking centralisation. Yet, Lyddon argues that regulators misdiagnosed the issue, as Open Banking was not designed to address the root causes effectively. This has led to a misalignment between regulatory intentions and practical market outcomes.
The conversation also touches on the economic viability of Open Banking providers. Lyddon states that, with commoditised services and insufficient monetisation models, many providers struggle to achieve sustainable profitability. The discussion of Vyne's exit from the UK market exemplifies the industry's precarious position, where negative economies of scale deter potential growth. Open Banking has not spurred the anticipated competition, as larger banks continue to dominate deposit bases, limiting the disruptive impact on incumbent institutions, he continued to say.
Despite challenges, there are some areas where Open Banking has added value, notably in simplifying processes for businesses managing multiple accounts. However, for Open Banking to really thrive, Lyddon suggests a reevaluation of its scope, urging regulators and industry players to reflect on unmet objectives and realign strategies accordingly.
In conclusion, the digest provides critical insights into the realities of Open Banking in the UK, emphasising the need for recalibration to ensure genuine value and competition. By addressing these pivotal points, the financial ecosystem may yet fulfil the original ambitions of Open Banking, despite its current trials.
Bob is an experienced management consultant privately and with PwC. His specialisms are multibanking in both the corporate and retail worlds, international payments, and Authorised Push Payment Fraud. Bob was general secretary of the IBOS multibanking alliance – www.ibosbanks.com – and he established the Connector multibanking network – www.connectorbanks.com.
Lyddon Consulting is the trading-as identity of Bob Lyddon, a consultancy in payments and cash management. Subjects include fintech, ISO20022 XML, new payment mechanisms and providers, and Authorised Push Payment Fraud.
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