Open to possibilities: governments bank on opening up financial services data

By on 27/03/2022 | Updated on 28/03/2022
A man and woman sit side by side on a sofa paying for something on a mobile phone with a credit card

What progress has been made to deliver open banking and open finance across the world? And what role should and could governments play? Ian Hall reports on a Global Government Fintech webinar that included perspectives from Australia, Brazil, Canada and the UK

Governments have a crucial role in enabling open banking and open finance but have taken different routes to doing so and are moving at very different paces. This was the conclusion of a webinar entitled ‘Open Banking and Open Finance: What Role – And Benefits – For Governments?’ that included panellists from four nations, plus the private sector, convened by Global Government Fintech, the sister title of Global Government Forum.

Open banking, described as ‘set to become globally ubiquitous’ in one analysis last year, aims to boost competition by enabling third parties, such as fintech companies, to use customers’ financial data (with their permission) to develop new apps and services. Open finance is the extension of open banking’s data-sharing principles across financial services more broadly.  

The 15 March webinar heard from the UK’s HM Revenue & Customs (HMRC), which is pioneering the use of open banking for tax payments; how Australia and Brazil have taken significant steps forward in introducing open banking; a viewpoint from Canada, where January 2023 is the proposed target date for launching an open banking system; and a perspective from the webinar’s knowledge partner, Microsoft, including technology angles such as data security.

The UK’s HMRC takes a lead

The UK is widely seen as ahead of the pack when it comes to implementing open banking: the Open Banking Implementation Entity was created back in 2016 (though the UK’s open banking governance arrangements have been under review); the number of people using services enabled by open banking hit five million in January; and HMRC is working with a fintech company supplying ‘payment initiation and account information services’.

Governments have a role to play in creating regulatory environments and governance structures that encourage innovation, HMRC’s head of payments Nick Down told the webinar audience. But, he said, it is “important” that they go further and – as HMRC is doing – “participate directly to try to make this happen” and use public authorities’ sheer “scale to contribute to making it happen”.

Read more: Joint Regulatory Oversight Committee for UK’s open banking regime

“We [HMRC] realised that open banking offered customers convenience and security, and really importantly could prevent them from making errors keying in information,” he explained. “We have to intervene in just under two-and-a-half million payments each year, and that’s almost always because information is missing or details are mis-keyed. If you’re dealing with millions of payments going through automated systems, it’s really difficult to put that right accurately. So, open banking was something that offered something really different,” he said.

Since introducing open banking into its operations, HMRC has taken about £4.2bn in tax through 1.8 million open banking transactions. “Each time we release new functionality, customers are snapping it up,” Down said.

Australia’s ‘economy-wide’ data-sharing programme

The UK is in the vanguard, but other nations are catching up. In Australia open banking became a reality after Consumer Data Right (CDR) legislation went live in July 2020 with four major banks mandated to share access to consumer data (when requested by the customer). CDR was extended to further deposit-taking institutions one year later and and is being extended to the energy and telecoms sectors.

Jessica Robinson, assistant secretary for CDR policy and engagement in Australia’s Treasury, said the government is investing a “significant amount of money alongside industry to deliver a truly economy-wide programme for consumers to access their data.”

Australia’s government set up the Data Standards Body to deliver open standards that support the CDR. These consist of technical and also customer experience standards. Robinson described a “set of core rules and standards that can ultimately be extended across to multiple sectors and datasets” enabling CDR to move into “rapid expansion over the coming years.”

Read more: Global Government Fintech covers the latest from Australia in a separate article

“Although we started with open banking, we are quickly now moving across to a multi-sector roll-out process,” she explained. “We’re doing that through a quite agile legislative programme where we are able to extend to new sectors [and] new datasets through delegated legislation called ‘designation instruments’, and set up rules and standards that apply to specific sectors.”

Australia’s CDR rollout “will be moving to a much more consumer benefit-focused approach” that, she said, “really drills down into high-impact datasets across multiple sectors to really achieve a horizontal and very rich dataset combination for fintechs and RegTechs to produce new products and services across various sector lines.”

Brazil moves into open finance

Brazil has also made very significant progress over the past year or so.

Diogo José Sousa da Silva, head of division in the Banco Central do Brasil’s (BCB) financial system regulation department, described the country’s open banking implementation journey that has progressed through four stages since February 2021.

The tempo has been quick but all has not gone completely smoothly. The central bank delayed the third phase of open banking’s rollout and Silva referred to a need to “fix issues” in terms of customer experience, and “also some connectivity issues”. This third stage incorporated Brazil’s state-run instant payments system ‘Pix’, which itself marked its first year of operation last November.

Read more: Slow but sure: exploring open banking’s potential for streamlining citizen services

In the fourth stage, implementation has moved into open finance, starting with fields such as insurance, pension funds, investments and foreign exchange. Already, open finance in Brazil has seen more than three million ‘active consents for data sharing’ from more than two million customers, according to BCB data.

Canada in the starting-blocks

Canada, where open banking is often referred to using the term ‘consumer-directed finance’, remains in the starting-blocks when it comes to implementation.

Michelle Beyo, a board member at non-profit advocacy organisation Open Banking Initiative Canada (OBIC), told the webinar audience that she was “very happy” to see the country’s Advisory Committee on Open Banking release its report last August. This proposed January 2023 as the ‘ambitious but achievable’ target date for launching an open banking system.

OBIC has been looking forward to Canada’s appointment of an open banking lead (announced after the webinar) “realising there’s an 18-month roadmap before we even complete phase one and move to phase two,” Beyo said.

Read more: Global Government Fintech covers the latest from Canada in a separate article

Beyo estimated that about six million people in Canada were using ‘screen scraping’ – a potentially “less secure” way of collecting data that was described as presenting ‘real security and liability risks to Canadians’ in the Advisory Committee’s report – concluding that “the need to have a secure and safe way to access data and have data rights is truly needed” in Canada.

Governments as capacity-builders and beneficiaries

Microsoft’s government industry strategy director, Valentina Ion, shared her thoughts from a technology perspective.

Microsoft is a partner of the Banking Industry Architecture Network (a non-profit association focused on enabling banking interoperability) and Ion emphasised the importance of factors ranging from data privacy and security, as well as the possibilities arising from developments such as quantum computing.

She described governments as “capacity-builders” that are needed to enable trusted data standards and governance for open banking and open finance ecosystems. But, she pointed out that governments also stand to benefit, such as by improving tax collection (as in the UK).

In terms of innovative and relatively quick-moving territories she highlighted South-East Asia, where she said the private sector had developed open banking- and open finance-related services out of “social-media for gaming industries”, leaving governments playing catch-up.

Countries learning from others’ experiences

It is clear that open banking and open finance will continue to evolve at different paces in different countries. It could also be a stop-start journey, including governments’ own adoption. 

HMRC’s Down aired a note of caution about open finance. “I don’t think it’s a given that we’re going to springboard into open finance,” he said. “It depends on having credible use cases that people in businesses want to use and recognise as being an improvement.”

People’s confidence will depend on “not making mistakes or big mis-steps along the way,” he added. “That, I suspect, is going to be incredibly important for this to really scale successfully, and really start to radically change how people handle financial and other services.”

Robinson said the UK HMRC example was useful as Australian authorities “need to look at that opportunity”, while Silva said “in the future we [Brazil] might also see, like the UK, some solutions that government itself would benefit from”.

The panel were asked what they had learned from other countries’ experiences.

“I think customer demand and market innovation will take us all forward, ultimately to a similar place, and what we need to do is get there in the best possible order, learning from each other,” said Down. “If I had to pick one thing it’s Australia’s emphasis on open data: everything else is really a subset of that, and where we get to will be open data.”

Silva said that it was important for the government and regulator to set technical standards because “initially we thought about leaving the market itself to propose them”.

Aspirations for the next 12 months

At the end of the webinar, the panellists were asked for their predications or aspirations for open banking and open finance in the year ahead.

Down provided three hopes. “Firstly, that we [HMRC] can add some further digital channels for customers: I’d hope one or more webchat [function], accounting software and open banking-enabled repayments. Secondly, for tax payments, that we can let customers know their account balances after they pay in real time (which has never been possible to us before). And thirdly, a broader hope is that this can translate into social benefits, for example, safe ways of enabling people to build up their credit-worthiness or getting access to tailored financial support and education.” 

Australia’s Robinson responded with “trying to get changes to legislation to enable deeper functionality on third-party initiation”. This, she said, would be “game-changing”, with the CDR ultimately acting as a “digital concierge”, enabling the success of ‘killer apps’ that enable consumers to make the most of their data across all sectors.

In a similar spirit, Silva envisaged that, as Brazil’s open banking and open finance systems bed in, financial institutions such as banks would be able to shift their focus from legal compliance to innovation; he also looked forward to payment initiation through Pix being available to the public in the coming weeks; and further developments in (and beyond) open finance.

Beyo responded that an announcement on Canada’s open banking lead would mean “we can get started on implementation”; hope that data portability be added to Canada’s Budget Implementation Act; and also that Canada moves quickly to enable open banking from a structural perspective so as to capitalise on the global movement towards open finance and open data.

Microsoft’s Ion envisaged the development of “more personalised lifestyle-type” services, metaverse pilots and government services.

Clearly, the ambition is there. Open banking may be in its infancy but as those watching the webinar will attest, the panellists of all four countries represented are determined to see progress on open banking and related data-sharing efforts in the months ahead. And it is likely more and more governments will follow suit.

Global Government Fintech’s webinar, ‘Open Banking and Open Finance: What Role – And Benefits – For Governments?’, was held on 15 March 2022, with the support of knowledge partner Microsoft. You can watch the 75-minute webinar via our dedicated event page.

This article first appeared on Global Government Fintech.

About Ian Hall

Ian is editor of Global Government Fintech a sister publication to Global Government Forum. Ian also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo. Ian has an MA in Urban and Regional Change in Europe and a BA in Economics, both from Durham University.

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