CMA orders development of open API for banking

New data-sharing framework will help level the playing-field for newer financial startups, says competition watchdog

Banks must develop an open API for sharing data between themselves, the UK's competition watchdog recommended today in a move to make it easier to switch banks.

The measure is one of several outlined by the Competition and Markets Authority (CMA) in its 'Making banks work harder for you' report, designed to level the playing field and prevent older, established banks having an advantage over newer start-ups.

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"The reforms we have announced today will shake up retail banking for years to come, and ensure that both personal customers and small businesses get a better deal from their banks," said Alasdair Smith, chair of the CMA's retail banking investigation.

"We are breaking down the barriers which have made it too easy for established banks to hold on to their customers. Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy."

With customers' consent, the new API would allow "authorised intermediaries" to look at information regarding banks' services, pricing and customer usage. This will speed up the development of the existing fintech industry, the CMA said.

Customers will be able to use the API to manage all of their bank accounts and financial holdings through one central app, even if their funds are spread across different financial providers. They could also check what bank would be best for them.

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The reforms are primarily targeted at consumers and SMBs, with the report noting that an open API could allow potential lenders to assess a small business's creditworthiness and offer them a better rate than their current creditor.

However,  some have pointed out that this could throw up some potential problems if something goes wrong. "Providing access to an account from another bank through a mobile app is going bring with it a number of challenges and questions," said application monitoring firm Dynatrace's EMEA vice president, Michael Allen.

"From the consumer perspective this is great, but what happens when there is a problem with the app, like an account doesn't load or the app runs slowly? Who will they blame for the problem and who will be responsible for solving it?" 

He added: "For banks, this is going to raise some interesting questions about how they manage and control the consumer experience, even though they aren't ultimately responsible for all the services being provided through the app."

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The UK's largest high street banks will be collectively responsible for establishing the open API, which must be completed between January 2017 and March 2018.

Alongside these reforms, the CMA also advised banks to adopt more competitive practices such as setting monthly maximum overdraft charges and providing metrics for analysis of service quality.

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