The Open Up Challenge 2020 Report

The Open Up 2020 Challenge Powered by open banking: innovation in consumer financial services today December 2020

Authors: Lubaina Manji, Catherine Thompson, Louisa Shanks, Laura Ferris and Miles Cheetham

About this report This report has been produced to summarise and provide insights from the Open Up 2020 Challenge, which was run by Nesta Challenges in partnership with The Open Banking Implementation Entity (OBIE).

There is a further report focusing insights from the Open Up 2020 marketing campaign which formed part of the challenge, which is published alongside this report.

Nesta is an innovation foundation. For us, innovation means turning bold ideas into reality and changing lives for the better.

Nesta Challenges’ Better Markets team works with regulators, policymakers and innovative enterprises to make markets work better for people. We advise regulators and policymakers how regulatory reforms and targeted public investment programmes can work together to achieve greater impact.

Within Nesta, Nesta Challenges uses challenge prizes to stimulate innovative solutions to some of the biggest challenges we face. Challenge prizes are a simple but powerful idea. A problem or opportunity is identified, the challenge is publicised and rewards are offered to those who can deliver the best solutions.

The Open Banking Implementation Entity (OBIE), also known as Open Banking Limited, was created in 2016 by the UK’s Competition and Markets Authority (CMA) to create software standards and industry guidelines that drive competition and innovation in UK retail banking.

OBIE are governed by the CMA and funded by the UK’s nine largest banks and building societies: Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, RBS Group and Santander.

The Open Up 2020 Challenge Powered by open banking: innovation in consumer financial services today 1

Executive summary

2

Introduction 6

3

4

2.1. Overview 2.3 Aims and challenge statement 2.3. Challenge structure and criteria 2.4. Partners and funding

6 6 7 8

Challenge winners and finalists

9

3.1. Winners 3.2. Other finalists

9 11

4

Challenge impact

13

4.1. The impact of Open Up 2020 4.2. Creating systemic change: The role of challenge prizes for regulators 4.3. The impact of a marketing campaign as part of a challenge prize

13 17 19

5

Insights from the Challenge: Consumers and open banking

21

5.1. Open banking for consumers today 5.2. How open banking can support financial wellbeing 5.3. Campaign insights: What consumers want

21 23 25

Insights from the Challenge: Innovators and open banking

27

6.1. The ecosystem 6.2. What’s powered innovation 6.3. What’s needed to supercharge growth 6.4. Lessons for other markets and sectors

27 28 31 33

What Next?

37

7.1. Open finance and beyond

37

6

7

Glossary 38 Endnotes 39

The Open Up 2020 Challenge

1

Executive summary The Open Up 2020 Challenge has shown that open banking has the potential to revolutionise financial services – transforming and opening up the UK banking industry by giving people control over their financial data, enabling the development of innovative personalised products.

This wave of innovation brings significant benefits to both consumers and small businesses and holds particular promise for people who are underserved by traditional financial services.

Research suggests that 37 per cent of people in the UK know they could get a better deal for financial products but don’t know where to start1 and that 15 per cent of adults in the UK are over-indebted, rising to 17 per cent in cities.2 With over quarter of consumers stating that they struggle to keep on top of their money, it comes as no surprise that 13 million people in the UK say they run out of money each month.3 Consumers want tailored, fair and trustworthy help with their financial lives and through Open Up 2020 we saw how innovators are delivering for UK consumers – using open banking in a way far beyond the aims of the regulators.

Open Up 2020 was a challenge prize that ran from July 2019 to October 2020 aimed at unlocking the power of open banking for UK consumers. It was delivered by Nesta Challenges in partnership with OBIE. Read more in Section 2 The challenge attracted over 100 entries, from which 15 incredible fintechs were selected as finalists. They developed and scaled their solutions over a period of ten months.

In October 2020, four winners were selected, representing the most innovative open banking-enabled products on the market to help consumers make the most of their money.

Read more in Section 3

4

The Open Up 2020 Challenge

The challenge prize generated a wealth of insights from a wide range of sources: from innovators, consumer research, a national marketing campaign and from experts who supported the innovators through the challenge. This report explores some of these insights, focusing on four areas:

Challenge prize impact

Consumers and open banking

Open Up 2020 is one of the largest challenge prizes to support the scaling of a new innovation run in the UK in modern history and the first with a major national marketing campaign as a key component for finalists.

The open banking ecosystem today is delivering consumers not only value but also choice with an incredible range of apps and services built using open banking.

For regulators of nascent sectors, OBIE highlights the value of challenge prizes to open a window into a developing innovation ecosystem.

Using a marketing campaign has been a hugely successful element of the challenge; not only in building awareness and adoption for the finalists, but also delivering a wide range of insights for the sector.

Millions of people in the UK are responding by adopting these products. Consumers are happy to access their data via third parties in order to access innovative solutions that truly help them manage their money better.

There is clear evidence demonstrating these products are boosting financial wellbeing in the UK. Read more in Section 5

Read more in Section 4

Innovators and open banking

Insights for open finance and

The innovation arising from open banking is wider and deeper than was anticipated by the legislation, made possible by creating a set of standards that level the playing field and welcome innovators in. It is clear that today, aggregators are playing a significant role in supporting early-stage products to use open banking, particularly those focusing on the consumer market – enabling iterative yet safe and secure innovation.

beyond

Open banking has had a strong trajectory in the UK, which looks to continue. Voices of innovators highlight the need for variable recurring payments (VRPs) and a revisiting of the 90-day re-consent rule to supercharge this growth pathway.

Read more in Section 6

5

Consumers and innovators are calling out for the next stage of legislation to enable UK consumers to take control of their complete financial lives, following the model set by open banking.

Open banking’s implementation offers up lessons for open finance and other sectors; looking at consumer rights and protection, how to design for vulnerable consumers, and how to incentivise data quality from the start.

Read more in Section 7

The Open Up 2020 Challenge

2

Introduction 2.1.

Overview

The Open Up 2020 Challenge was a £1.5 million challenge prize delivered through a partnership between the Open Banking Implementation Entity (OBIE) and Nesta Challenges as part of the UK’s world-leading open banking agenda. The challenge sought to unlock the power of open banking for UK consumers. It was designed and timed to boost consumer awareness and adoption of open banking-enabled products.

Since it launched in 2018, open banking technology has opened the door for new fintech innovators to create cutting-edge tools: for everything from budgeting, debt management, comparing and switching accounts, automating savings, overdraft alternatives and so much more. Open Up 2020 follows directly on from the first Open Up Challenge which ran from 2016 to 2018, backing the next generation of fintech products and apps for UK small businesses. The two stages of this first challenge awarded £2.5 million equity-free prize funding to 25 financial technology companies in total, as well as comprehensive non-financial support. This support included access to a highly secure sandboxed dataset of millions of customer bank transactions in order to safely test their solutions. It is now estimated that UK consumers stand to gain £12bn from open banking-enabled tools.4

2.2. Aims and challenge statement The aim of Open Up 2020 was to unlock the power of open banking for UK consumers.

The challenge statement to innovators was: We are looking for products and apps that use open banking to help people better manage their money through more transparent, accessible and fair products. This includes: • Personal current account comparison that supports ‘unbundling’ and easy switching to a different account provider • Helping people use an overdraft provider that is not their bank and avoid expensive, unexpected fees (‘unbundling’ of overdrafts from personal current accounts) • Automated/‘robo’ financial management to help build savings buffers and manage debt

6

• Widening access to affordable credit including alternative lending options and innovations in credit scoring • Boosting earnings on savings, including high balance sweeping so people earn interest on their credit balance • Micro-payments towards savings This list is in no way exhaustive and we will be looking for innovative applications that use open banking to tackle a wide range of personal finance-related problems and opportunities.

The Open Up 2020 Challenge

2.3. Challenge structure and criteria The Open Up 2020 Challenge was a challenge prize.

Challenge prizes are competitions that take a specific problem and incentivise people to solve them with their own ideas, technology and sustainable solutions. They are a tried and tested method of attracting new innovators to change the status quo. At the same time, they also challenge incumbents to redirect their efforts or think about a problem in a new way.

The challenge received over 100 applications in response to the challenge statement, from which the judging panel then selected fifteen finalists. The finalists each received an equity-free £50,000 prize grant with three being awarded a further £50,000 each for demonstrating the clearest alignment with the financial inclusion goals of the challenge. The finalists had access to a range of non-financial support over a ten-month development period, including expertise and support with user testing, behavioural insights, growth strategy, marketing and technical support and insights with OBIE. At the end of the development period, the finalists pitched to the judging panel, and four winners were selected. Each winner received an additional £150,000 prize to develop their solution further.

Challenge Prizes A Practice Guide

Find out more about challenge prizes in our Practice Guide at bit.ly/Nesta-Challenges-PG-2019

The Open Up 2020 Challenge timeline

7

Challenge opens

Product development

Winners announced

We received entries from over 100 teams around the world

Finalists had access to a programme of expert help to drive user adoption of their solutions

Four winners were selected and awarded £150k prize money to support the final stage development of their solutions

Grants announced

Live pitches

We awarded £50k to 15 finalists. Three teams received an extra £50k for Financial Inclusion

All finalist teams pitched their ideas in front of the judging panel

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

July 2019 – October 2019

November 2019

November 2019 – September 2020

29-30 September 2020

14 October 2020

The Open Up 2020 Challenge

The finalists and winners were selected by a judging panel who assessed applications against the pre-agreed, published assessment criteria. To be eligible to enter the challenge, innovators had to be a legally registered entity on track to launch their open banking-enabled consumer product in the UK no later than January 2020.

The assessment criteria focused on: • Product innovation and customer value

• Team and technology

• Commercial model and market

• Consumer experience

• User acquisition and customer experience

The judges The independent judging panel was made up of: Christine Foster Managing Director for Innovation, The Alan Turing Institute (Chair) Chris Michael Head of Technology, Open Banking Colm Lyon CEO and Founder, Fire.com Drew Graham Director of Digital Strategy, Barclays Faith Reynolds Independent Consumer Expert

Farhan Lalji Principal, Venture Partnerships, Anthemis Ilse Treurnicht Former CEO, MaRS Discovery District Matthew Upton Director of Policy, Citizens Advice Susanne Chishti CEO, Fintech Circle Varun Paul Senior Manager, Future of Finance, Bank of England

2.4. Partners and funding The Open Up 2020 Challenge was delivered in partnership by Open Banking Implementation Entity and Nesta Challenges.

The challenge worked with many organisations to deliver support and marketing for the finalists. Many thanks to the teams at: Seven Consultancy

Behavioural Insights Team

Unkillable

Blue State Digital

We are People

Cameron Communications

Multiple

UserTesting.com

And for the support of Entrepreneur-in-Residence Sarah Tierney and the judges.

8

The Open Up 2020 Challenge

3

Challenge winners and finalists The fifteen finalists represented a range of varied open banking use cases all aimed at giving UK consumers control over their finances. All of the finalist products were selected by the judges as market-leading examples of technologies that help people to better manage their money in a way that is more transparent, accessible and fair.

3.1.

Winners

The four winners of the Open Up 2020 Challenge are:

Mojo Mortgages Mojo Mortgages’ winning solution is MortgageScore™, a personal finance tool powered by open banking that provides future mortgage customers with the insight they need to get mortgage ready.

With four in ten young adults in the UK having faced mortgage rejection,5 Mojo Mortgages was selected as one of the challenge winners because the judges felt they had developed a very effective product that reflects the needs

of a large proportion of the UK population in their desire to own a home. The judging panel appreciated that the product is able to advise customers early on in their mortgage and homebuying journeys.

Plum Plum is a savings service that allows users to invest in a portfolio of investment products.

It uses open banking to securely connect and analyse a user’s current account, allowing a chatbot to make personalised savings and suggestions to help consumers grow their money.

In the UK today, 27 per cent of people say they want guidance on saving money from experts.6 Plum was selected as one of the challenge winners because they have developed a product

9

that is an exemplar of open banking, standing out in a crowded market.

The judges felt that the organisation has worked hard to increase the number of savers in the UK, many of whom are first-time savers and investors.

The Open Up 2020 Challenge

Moneybox Moneybox helps you save and invest for the future. You can set money aside through round ups or regular deposits and choose from a range of products including ISAs, savings accounts and pensions. Moneybox uses open banking to ‘round-up’ users’ spending on everyday purchases that can then be used in their range of savings products.

a niche for themselves in the personal finance management tool market.

With 43 per cent of people saying they know they could get a better interest rate than they do with their current savings account,1 Moneybox was selected as one of the challenge winners because they have successfully been able to carve out

The judges felt they had a clear ambition to cater to the shifting financial needs of their customers throughout their lifetime and are supporting financial wellbeing across the UK by attracting and encouraging first-time savers.

Wagestream Wagestream is a service offered to employers, allowing their employees to track their earnings in real-time, stream their earned wages, learn financial tips for money management, and save straight from their salary. Wagestream uses open banking to support their existing customers to boost their financial wellness long-term.

At the start of the challenge, 77 per cent of people in the UK agreed that people who are struggling financially need to be better supported to make more of their money.1 Wagestream was selected by the judges as one of the challenge winners because they demonstrated the large amount of positive impact the product has had on people’s lives to date and the impact

10

it will continue to have, particularly in light of COVID-19.

The judging panel was impressed by the number of Wagestream users that choose to use payment reminders via open banking and hope to see this number rise as the organisation continues to grow.

The Open Up 2020 Challenge

3.2. Other finalists The other 11 finalists of the Open Up 2020 Challenge were:

Canopy Canopy aims to make it cheaper, faster, and easier to rent a home. It’s their mission to help millions of renters achieve greater financial resilience by improving rental health.

Cleo Cleo is a personal financial management tool with a sense of humour which helps Gen Z/Millennials budget, save and track their spending.

Creditspring Creditspring is an affordable credit subscription service offering small interest free loans for short term credit to help those with limited savings or persistent debt cope with unexpected expenses.

Currensea Currensea is the first travel debit card that connects to your existing high street bank account, offering competitive exchange rates and saving over 85 per cent on bank charges when spending abroad.

Kalgera Kalgera is a personal financial management service aimed at vulnerable, older users and their legally appointed trustees.

Kalgera uses open banking to check transactions for anomalies to protect users from fraud and scams.

11

The Open Up 2020 Challenge

Moneyhub Moneyhub helps consumers know where they stand with their money. Consumers can see all of their finances in one place and use market-leading tools to achieve their goals.

Portify Portify helps its members, typically those in non-traditional work or gig economy workers, to budget, build their credit score, and access interest-free loans so they can build a financial safety net.

Sustainably Consumers can say hello to a simpler way of giving. With Sustainably, it’s never been easier to give to the causes you care about and have a positive impact every day.

Touco (previously Toucan) Touco was built to help people with long term mental health conditions better manage their money with the support of their family and friends. Please note, Touco discontinued their app using open banking before the final judging panel.

Tully Tully is a digital debt adviser for those struggling financially – providing online budgeting, debt advice, flexible repayments and money coaching to alleviate financial stress.

Updraft Updraft is the ‘Google Maps of money’. Their mission is to help customers navigate from borrowing to saving whilst reaching their life goals faster with a consolidation loan. Their ultimate vision is to automate all of their customers’ finances.

12

The Open Up 2020 Challenge

4

Challenge impact 4.1. The impact of Open Up 2020 A theory of change is a roadmap to achieving impact and change you desire to create – it creates a pathway through activities to outcomes and finally to the desired impact. The theory of change for Open Up 2020 is shown below.

Activities

Outputs

Outcomes

Impact goal

13

Engage

Deliver

Design

Open Up 2020 Challenge Prize with a range of non-financial support, roundtables with OBIE and a national marketing campaign

Breakthrough innovation

Helping innovators thrive

Creating systemic change

Open banking future roadmap is shaped by learnings from the challenge

Finalist capabilities are improved

Consumer awareness and understanding of open banking is increased

A diverse cohort of innovators and use cases enters the challenge

User adoption of the finalist solutions is accelerated

The open banking ecosystem is strengthened through challenge insights

New partnerships and collaborations are created

Solutions that serve those who are financially excluded or lack financial resilience are given extra support

Strengthen the financial wellbeing of UK consumers through open banking powered solutions

The Open Up 2020 Challenge

There is evidence highlighting exciting progress on all of the outcomes, with indicators suggesting that the financial wellbeing of UK consumers has been strengthened through open banking-powered solutions; particularly from the winners of the challenge, illustrating the positive impact and achievements of the Open Up 2020 Challenge.

Breakthrough innovation A diverse cohort of innovators and use cases enters the challenge • The challenge received 107 entries across a wide range of use cases.

• 19 entries were for use cases beyond those specified in the challenge statement.

• Organisations entering were at a range of stages, ranging from newly incorporated organisations with only the founding team to organisations who had raised greater than £10 million or had been acquired, with 50+ employees.

Solutions that serve those who are financially excluded or lack financial resilience are given extra support • Three finalists were selected by the judging panel to receive an extra £50,000 prize grant at the beginning of the development period due to their focus on financial inclusion – Wagestream, Touco and Kalgera.

• The judges selected Wagestream as a winner, highlighting how this use case had the potential to reach consumers who may not otherwise engage and benefit from open banking.

• Kalgera identified the prize grant as the most helpful and impactful part of the prize – contributing to them hiring a team in November 2020, designing, building and completing the core PFM product that was launched in Q1 2020 and developing a business development pipeline by April 2020.

The Nesta prize was instrumental in Kalgera’s growth despite the setbacks and difficult conditions.

Kalgera

Without the challenge we would not have had the funding to hire a team and build new open banking functionality. We designed and delivered a new version of our app and spent a lot of time researching and testing the specific user flows around two people sharing access to data via open banking.

Touco

14

The Open Up 2020 Challenge

There is evidence of progress on all of the outcomes, along with indicators suggesting that the financial wellbeing of UK consumers have been strengthened through open banking powered solutions – particularly through the finalists and winners of the challenge, illustrating the positive impact and achievements of Open Up 2020.

Evidence on progress against outcomes Breakthrough innovation Outcome: Attract a diverse cohort of innovators and open banking use cases to enter the Open Up 2020 Challenge Result: The challenge received over 100 eligible applications, across a wide range of consumer-focused use cases. As a cohort, the 15 finalists selected by judges – organisations of varying sizes – represented the breadth of open banking products available to consumers.

Outcome: Solutions serving those who are financially excluded or lack financial resilience, were given extra support Result: At the beginning of the Challenge, three finalists were selected by the judging panel to receive an extra £50,000 in grant funding due to their focus on financial inclusion. The three companies were Wagestream, Touco and Kalgera. One the finalists stated that “the Nesta prize was instrumental in our growth despite the setbacks and difficult conditions.” Wagestream ultimately was selected as one of the winners, with the judges highlighting how this use case had the potential to reach consumers that may not otherwise engage with open banking.

Help innovators thrive Outcome: Improve the capabilities of the finalists through non-financial support Result: The teams received a mixture of group workshops and one-to-one sessions in a range of different disciplines. 14 of 15 finalist teams agreed that the challenge improved the capabilities of their team and 12 agreed that, as a result of the challenge, they were able to access support they would not otherwise have been able to. The challenge also helped the innovators to create new partnerships and collaborations.

Outcome: Accelerate user adoption of finalist solutions Result: Open Up 2020 accelerated user adoption for finalist solutions through the marketing campaign, which generated over 23,000 leads for finalists, with 351,000 clicks on the Open Up consumer website and those of the finalists. Finalists reported that coverage in publications such as This Is Money and WIRED helped to give finalists a necessary ‘stamp of approval’ and build customer trust.

15

The Open Up 2020 Challenge

Create systemic change Outcome: Help OBIE to shape the future open banking roadmap Result: Throughout the challenge, OBIE were able to learn directly from the finalists about the barriers they were facing in building and growing their products. Two roundtables were held for CTOs, engineers and product managers with OBIE key subject matter experts for support, testing and standards. Finalists were able to feedback directly on the final roadmap and this encouraged an open dialogue about what areas were yet to be prioritised. The digital marketing campaign was also able to provide valuable insight to the OBIE marketing and communications teams on how to communicate about open banking, including what types of messaging were most effective.

This is explored further in 4.2

Outcome: Increase consumer awareness and understanding of open banking Result: Increase consumer awareness and understanding of open banking The national marketing campaign run reached over 7.7 million UK consumers, and evidence shows that those exposed to the campaign had a 3x higher awareness of open banking, were 2.6x more likely to trust it and twice as likely to adopt. They were 10x more likely to be using open banking.3 This is explored further in 4.3

16

The Open Up 2020 Challenge

4.2. Creating systemic change: The role of challenge prizes in regulation of new sectors Miles Cheetham explains how the Open Up Challenges have supported the development of open banking from within OBIE.

What were the most significant insights and outcomes for OBIE? The two challenges run by Nesta, the first Open Up Challenge which finished in 2018, and Open Up 2020, have been extremely valuable for the insights that they have brought, and have helped to shape the development of the Open Banking Ecosystem.

As highlighted in Section 6, the role of aggregators providing services to new innovators operating in an ‘agency’ relationship became clear as early as 2018. What were originally envisaged as services that were white-labelled or offered in a reseller capacity, we have seen through the challenge actually proved to be a way to enable start-ups to integrate quickly and at lower cost, reach their market faster, and iterate their consumer proposition quickly.

This has proven to be a spur to encourage entrepreneurial innovation, as new entrants are able to launch, test, iterate and scale without initially requiring full FCA authorisation.

As a result, the key role that companies such as Truelayer and Plaid perform has been well understood and appropriate support has been provided. In turn, visibility of and support for these smaller start-ups has improved. These companies often run the risk of being overlooked because they have not applied for FCA authorisation. This is, in fact, a powerful enabler of innovation at the edge and will encourage the development of tomorrow’s successful fintechs.

What was very apparent in the entries received for Open Up 2020 was the sheer breadth of propositions. There was huge creativity, with propositions aimed at every life stage. Because

17

the majority of these were newer businesses, this wide spectrum of solutions had not been fully recognised at the time. Some of these, such as solutions for more vulnerable consumers with chronic or mental health problems were unexpected and very welcome.

Another valuable aspect of both challenges has been the direct window into the way in which the finalists are developing. This provides great insight into both the individual companies, but as we are able to watch the cohort of finalists, it also provides an excellent way to understand the issues that they face and the way in which the wider ecosystem is developing. What starts as a collection of companies competing against each other soon becomes very human, as we get to know both the businesses and the people behind them. Funding challenges, external impacts such as COVID-19, resource constraints and regulatory challenges such as 90-day reauthentication explored further in Section 6, become very real and well understood – you simply get a much deeper understanding of these.

The benefits to the smaller finalists from the non-financial support that was provided will, I believe, have a long-term impact and are worthy of consideration in long-term industry support beyond the challenges themselves.

Overall, this has been hugely valuable to OBIE. The learnings themselves have therefore been captured in the way OBIE addresses and supports the developing ecosystem, in the way that communication and messaging has evolved through greater understanding, the awareness generated, and through the Customer Experience Guidelines within the Open Banking Standard itself.

The Open Up 2020 Challenge

The benefits of a challenge prize for innovators Prize money is, of course, a significant benefit for start-ups and businesses that are scaling up. This is the most obvious benefit. However, the design of the challenges is such that the marketing and non-financial support provided, as well as the access to the OBIE team, has significant impact. Open Up 2020, with its integral adoption/ awareness campaign through PR and social media undoubtedly provided a spur, and in doing so also revealed the propositions that resonated most strongly with their target audience. The non-financial support and access to OBIE gave the teams a chance to ask questions, put their own business under the lens and emerge with a better network, fresh ideas and greater skills.

The greatest long term benefit though, in my view, is the kudos associated with winning. We witnessed the impact on the winners of the first Open Up Challenge. These went on to secure their immediate futures with very significant investment and/or grants, much of which I believe was attributable to the confidence in these businesses through having been subjected to the scrutiny of the Nesta team and judging panel.

The benefits of a challenge prize for regulators A challenge prize with a clear focus – for example, on a specific problem or type of consumer – is a great way to gain insight into the way the marketplace is addressing that particular space. Moreover, it has a catalysing effect, in that organisations, innovators and entrepreneurs become more aware of the issue and therefore focus more energy, time and money trying to create solutions. However, through Open Up 2020, the judging panel – with a clear mandate

on financial inclusion – brought two solutions for this underserved group into clear focus.

These early-stage solutions for highlighting abnormal spending patterns for consumers with poor mental health and dementia serve as important signposts for what can be achieved yet have not been put in place by the incumbent providers. The more vulnerable in society and the financially excluded in particular can benefit from this type of intervention. There is much scope, therefore, to use a challenge prize to address issues that the mainstream market might otherwise largely overlook.

What impact have Open Up 2018 and Open Up 2020 had on the UK open banking sector?

The overall impact has been to raise awareness of open banking and stimulate innovation, and in their role as a way of listening both to consumers and to the industry, they provided valuable insight that has assisted the development of the Open Banking ecosystem. Both of the challenges have been effective in bringing focus to their respective markets, ultimately contributing to the adoption of open banking enabled services. At this early formative stage, the additional channel and resource provided by leveraging Nesta’s expertise has been invaluable.

This was highly evident when evaluating the impact of the COVID-19 shock in April 2020. Nesta Challenges were able to quickly understand the impact on the individual finalists.

Through careful analysis of the situation, they were uniquely positioned to recommend remedial actions and provide insight that was useful to OBIE in formulating and handling their overall response for the ecosystem.

Miles Cheetham Member of the Judging Panel, Open Up Challenge Member of the Prize Committee, Open Up 2020 and Programme Manager for OBIE, Former Head of Propositions, OBIE October 2020

18

The Open Up 2020 Challenge

4.3. The impact of a marketing campaign as part of a challenge prize Communications is a key part of any challenge prize – but Open Up 2020 went further than ever before, with a national marketing campaign as an integral part of the programme.

The results of this campaign have been very positive and three-fold: 1. Finalists have reported meaningful growth in adoption of their solutions.

2. Consumers exposed to the campaign have a significant uplift in trust, awareness and use of open banking.

3. There has been a breadth of insights generated around communicating open banking and open bankingpowered services to consumers. This is now available to the entire ecosystem via the Campaign Report.

Running a campaign to drive adoption of open banking in the UK Campaign Report | October 2020

One of the benefits of combining a campaign with a challenge prize was that it enabled the promotion of easy-to-understand specific use cases of a new technology to media and consumers. This facilitated a quick understanding of benefits and an acceleration of adoption directly – in a way that is much simpler than promoting a new technology concept, where benefits can sometimes be more general or intangible. This approach also enabled more authentic paid media partnerships, where collaborators had editorial freedom to pick and choose solutions they felt would genuinely benefit their audiences.

Due to the success of the Open Up 2020 campaign, Nesta Challenges will be looking to recommend similar campaigns for other scaling prizes which address sectors where technology is available to users, but there is low trust or awareness. Examples of other sectors where this may be relevant in the next couple of years include other open data projects – such as energy, pensions or telecoms, and new consumer technologies to reduce emissions.

19

1

The Open Up 2020 Challenge

Across the UK, the campaign saw an uplift in customers’ likelihood to adopt open banking solutions as a result of seeing the campaign 3 People exposed to the campaign N=243

3x higher awareness of open banking

2x more likely to adopt

2.6x more likely to trust it

10x more likely to be currently using it

20

Awareness of open banking

I would be happy to use apps and tools to help me manage my money

Likelihood to use an app that helped you control or understand your finances in some way

I would trust a regulated company using open banking to look after my financial data I’m happy to share my data with secure apps and websites that help me save money

Are you currently using, or have you ever used an open banking enabled product

It is helping/helped me save money

Money management apps and tools have helped me stay on top of my finances during COVID-19

vs

Everyone else N=1,757

The Open Up 2020 Challenge

5

Insights from the challenge: Consumers and open banking 5.1. Open banking for consumers today Consumers want tailored, fair and trustworthy help with their financial lives, and it is clear innovators are delivering for UK consumers – using open banking in a way far beyond the aims of the regulators.

Analysing the entries to Open Up 2020, it’s clear open banking can now support people throughout their financial lives – in a way that is much more diverse and tailored than traditional banking ever has been. Not only has open banking enabled rapid and consumer-focused innovation but it also critically offers consumers a really wide range of choice to find the right solution that works for them.

Whereas the CMA Order initially sought to create more competition in the banking industry, encouraging people to compare and switch bank accounts, arguably what can now be seen is a commodification of bank accounts. As long as a bank account has a strong and reliable open banking API connection, consumers have a wide range of choice in terms of how to access services traditionally bundled with a current account – from options for short-term credit as an alternative to an overdraft – for example through Creditspring, Portify, Cleo, options on how to manage spending abroad – for example, Currensea, and options for easily linked savings accounts – for example, Plum and Moneybox and most usefully, simple ways to see it all in one place, making banking with multiple providers much simpler and easy to manage.

21

The Open Up 2020 Challenge

Supporting others

Learning about money

Simple charitable giving Supporting vulnerable people

Childhood savings Financial education Structuring a budget

Planning for the future

Building financial resilience

Saving towards a goal Preparing for a mortgage Applying for a mortgage Building a pension Investing

Building a credit score Getting a loan Managing debt Managing a budget Avoiding fraud and scams

20 per cent of entrants aimed to help people to save towards a goal or special occasion – again in a really wide variety of ways. With 29 per cent of people in the UK having no ‘rainy day’ savings even at the beginning of COVID-19 related lockdown, this wide range of options can support consumers in the UK to build savings in whichever way works for them - whether it’s regular savings, AI-powered saving calculations, group accountability for savings or even ‘savings challenges’ as just a couple of examples.

Everyday money management Comparing accounts Renting a home Paying tax Saving money on bills Saving money on spending Saving money on fees abroad

20 per cent were helping people to budget better or access financial advice.

Just over 60 per cent of entries had a core offering of personal financial management (PFM) tools – with many focusing on a particular audience, such as Generation X, those with irregular incomes or people who had savings over £10,000 for the first time in their lives. This wide range of products means that consumers can truly find the solution that is right for them to help them manage their money day-to-day.

What’s really really exciting thethe entries is that What’s excitingabout about entries they go further than a traditional money is that they go further than a traditional management might – over 40 per cent of money over 40people entries management looked at other might ways to–support in their lives; for example supporting per centfinancial of entries looked at other ways manage renting a home, tax, pensions, topeople support people in their financial lives. alternative credit through current account Examples these include: supporting transactionofdata alone, supporting with people manage renting, tax, pensions and alternative credit through current account

financial education in a much supporting more intuitive way transaction data alone, with than a classroom ever could deliver and enabling financial education in an intuitive way people to reflect on how they were spending their when spending money, and ‘switching’ money – and switch their behaviour, whether to make their money go whether further through services clean behaviour; to make theirtomoney up go subscriptions and provide cashback, or choose further through services to clean up to spend more mindfully with sustainable shopping subscriptions and donations. and provide cashback, or

choose to spend more mindfully with sustainable shopping and donations.

Note: Some entries covered more than one category, meaning the total adds up to more than 100 per cent.

22

The Open Up 2020 Challenge

5.2. How open banking can support financial wellbeing A large proportion of people struggle to keep on top of their money with 25 per cent of people saying that they run out of money at the end of each month.3 Almost a third of people also do not know if they are paying more interest or fees than they need to on their credit cards and overdrafts.1 Just two weeks into the first COVID-19 lockdown in the UK, 16 per cent of people agreed that they needed to speak to a debt adviser to help them get out of the red and 14 per cent stated that they needed access to new forms of credit in order to help them get by.6 Without increased access to affordable financial tools, advice and education, the financial wellbeing and resilience of the UK population will continue to suffer.

The Open Up 2020 Challenge

As it stands, evidence suggests not enough people are able to access the resources they need to make better decisions concerning borrowing and debt management, nor are they able to save for emergencies and the future. However, over half of people agree that they want to feel more in control of their money.3 How do we, therefore, meet consumer need and demand to begin bridging the gap and moving towards a financially healthy UK society for all?

In the UK Strategy for Financial Wellbeing, the Money and Pensions Service (MaPS)7 set out five outcomes that they want the strategy to achieve over a ten-year timeframe. It’s clear to see how finalists in Open Up 2020, and many other open banking innovations can critically support delivery of these. Particularly: building a nation of savers, enabling access to affordable credit, supporting better debt advice and establishing a future focus for people – planning for their future.

Powered by open banking: innovation in consumer financial services today

December 2020

23

The Open Up 2020 Challenge

Building a nation of savers Solutions such as Moneybox and Plum support and guide consumers on how to save and invest for the future – often for the first time. Moneybox’s goal, in particular, is to be able to support their consumers throughout their lifetime. Through using new approaches to incentivise saving, these innovations enable consumers to find a solution to save that works for them

Access to affordable credit Creditspring, Wagestream and Portify provide consumers with choice when it comes to short-term financial needs – providing access to cash via new affordable models, including access to earned wages and subscription models to access otherwise interestfree credit. Wagestream highlight how they aim to ensure a small event – such as an appliance breaking – doesn’t become a life event through cycles of debt.

For those with existing debt, Updraft analyses the transactions their customers make to pay off loans and overdraft fees and advises them on recommended consolidation loans and how to prioritise their payments, taking some of the burden away from those worried about credit cards and overdrafts they are struggling to get out of.

Choice is often something that people with limited or bad credit history don’t have – and this range of options can put consumers back in control of their future.

Better debt advice Tully, functions as a digital debt adviser for those struggling financially, providing a route to get help without having to meet with someone face-to-face, which can often be a barrier to getting support. Critically, they offer a scalable solution, enabling tech to do the heavy lifting with consumers and ensuring that many more people can access the advice they need on their own terms and in their own time.

Future focus In order to understand and plan for the future, arguably, you need to understand your current financial situation. Cleo is a personal financial management chatbot tool that helps young people, Gen Z and Millennials, to budget, save and track their money – arguably providing some financial education along the way. Moneyhub, with a very different approach to personal financial management, enables consumers to join up all of their financial products into one place and offers smart features to enable consumers to project their future account balance, seeing what impact small changes to their budgets can make.

For most, a home is a big part of their financial lives. Through open banking, Canopy and Mojo Mortgages equip consumers with the tools they need to understand and budget for their next home – whether they will be renting or hoping to get their first mortgage.

24

The Open Up 2020 Challenge

5.3. Campaign insights: What consumers want

7.7

The campaign in numbers

million people reached

A key part of Open Up 2020 was a marketing campaign to drive adoption of the fifteen finalists and to understand what makes consumers aware, interested and engaged in open banking-powered services.

The Open Up 2020 Campaign reached more than 7.7 million people, with 12 per cent of people in the UK recalling seeing an ad.

There was an incredible breadth of insights from this campaign, which reached over 7.7 million people in the UK over a period of nine months.

The campaign was made up of over 180 advert variations, with more than 30 unique messaging angles.

It generated over 388 pieces of press coverage, including paid partnerships with WIRED and This is Money.

It’s clear from the results that consumers are ready to adopt open banking-powered services.

Some of the highlights of the findings of the campaign include:

30

unique messaging angles

388

pieces of press coverage

What

Help people plan for their future Help people plan for their future

Who Surprising audiences Surprising audiences

Most likely to adopt Most likely to adopt

25

Confidence and empowerConfidence ment

Products with propositions that appealed the most to customers were those that focused on planning for their future. Particularly during Products COVID-19,with suchpropositions positioningsthat are likely appealed the most were to feel most relevanttotocustomers them. those that focused on planning for their future. Particularly during COVID-19, such positionings are likely to feel most relevant to them.

While traditionally excluded from fintech campaigns, older security conscious audiences as well as financially vulnerable and struggling While traditionally excluded from audiences showed a high level of fintech campaigns, older security engagement and shouldn’t be ignored. conscious audiences as well as financially vulnerable and struggling audiences showed a high level of engagement and shouldn’t be ignored.

However, it was the younger audiences as well as existing website visitors that showed the highest propensity to adopt, and should remain a priority However, it waslooking the younger audiences segment when to achieve as well as existing website visitors that adoption targets while other audiences showed the highest propensity to are nurtured through the funnel. adopt, and should remain a priority segment when looking to achieve adoption targets while other audiences are nurtured through the funnel.

Customers respond well to messages that make them feel confident and in control of their money. Use an empowering tone, and focus your Customers well to messages message onrespond being personalised and that make them feel confident and in relevant to the consumer benefits.

Plan for the future

Boost your resilience

adoption rate the future

adoption rate resilience

adoption othersrate

adoption rate

adoption rate

adoption rate

% % 15.5 13.9 Plan for Boost your

15.5% 13.9%

Support others

% 0.9 Support

0.9%

Financially vulnerable

Financially struggling

Security conscious

Financially vulnerable

Financially struggling

Security conscious

Younger early adopters Younger early adopters

Message framings that worked

Empowerment

Website visitors Website visitors

.. didn’t work as well

Financial health

e.g. ‘Take charge’, ‘Feel in control’ Message framings that worked

e.g. ‘Clear your mind’ .. didn’t work(gain) as well Benefits

charge’, ‘Makee.g. your‘Take money go further’

e.g. ‘Spend less time Financial health managing your money’

Missing out (loss) Empowerment e.g.

‘Don’t miss out’

However, it was the younger audiences as well as existing website visitors that However, it was the younger audiences showed the highest propensity to Most likely as well as existing website visitors that The Open Up 2020 Challenge adopt, and should remain a priority to adopt showed the highest propensity to Most likely segment when looking to achieve adopt, and should remain a priority adoption targets while other audiences to adopt segment when looking to achieve are nurtured through the funnel. adoption targets while other audiences are nurtured through the funnel.

Younger early Younger adopters early

Website visitors Website visitors

adopters

Messaging that works

Confidence and Confidence empowerand ment empowerment

Social proof messaging Social proof messaging

Customers respond well to messages that make them feel confident and in Customers respond well to messages control of their money. Use an that make them feel confident and in empowering tone, and focus your control of their money. Use an message on being personalised and empowering tone, and focus your relevant to the consumer benefits. message on being personalised and relevant to the consumer benefits.

To drive direct action from consumers, the message framings that worked To drive direct action from consumers, best were social proof (offering the message framings that worked validation that these products are best were social proof (offering used by many) and piquing validation that these products are consumers’ interest by starting with a used by many) and piquing question or showing the brand first. consumers’ interest by starting with a question or showing the brand first.

.. didn’t work as well

Message framings that worked

Empowerment Message framings that worked

..Financial didn’t workhealth as well

e.g. ‘Take charge’, Empowerment ‘Feel in control’ e.g.

‘Takeout charge’, Missing (loss) ‘Feel in control’ e.g. ‘Don’t miss out’ Missing out (loss) ‘Make your money go further’ e.g. ‘Don’t miss out’ ‘Make your money go further’

e.g. ‘Clear your mind’ e.g. ‘Spend less time Benefits (gain) managing your money’ e.g. ‘Spend less time managing your money’

Message framings that worked

.. didn’t work as well

MessageSocial framings that worked proof

.. didn’t work as well

e.g. using testimonies or Social proof user stats e.g. using testimonies or Starting with the brand user stats

or a question Starting with the brand or a question

e.g. ‘Clear your mind’

Financial health Benefits (gain)

Future self Starting with the solution Future self Using identity Starting with the solution Using analogies Using identity Using analogies

Communicating about open banking

Open banking Open banking

Innovation and personInnovation alisation and personalisation

Credibility and security Credibility and security

Using the term ‘open banking’ doesn’t turn consumers off and can be used in Using the term ‘open banking’ doesn’t communications that are designed to turn consumers off and can be used in raise awareness of the service as long communications that are designed to as it’s contextualised in a jargon-free raise awareness of the service as long way. as it’s contextualised in a jargon-free way.

When explaining what open banking is, focus your message on the When explaining what open banking innovation aspect and be is, focus your message on the personalised and relevant for the innovation aspect and be consumer benefits that it enables. personalised and relevant for the consumer benefits that it enables.

Build trust by mentioning how open banking is governed, FCA regulation Build trust by mentioning how open and the fact that it’s used by UK’s banking is governed, FCA regulation largest banks already. When talking and the fact that it’s used by UK’s about security, customers want to see largest banks already. When talking evidence and proof points. about security, customers want to see evidence and proof points.

But when promoting products and looking to drive adoption, it’s the product benefits that are But when promoting products and looking to important to emphasise, not the fact that it’s drive adoption, it’s the product benefits that are open banking. important to emphasise, not the fact that it’s open banking.

“...technology designed for the “...technology modern 'mobile designed for the world’” modern 'mobile world’”

“developed by the UK’s “developed largest bybanks” the UK’s largest banks”

Full details are available in the Open Up 2020 Campaign Report.

26

“this technology will soon underpin “this technology all major UK will soon underpin financial all major UK institutions“ financial institutions“

“..allows people to get personalised, tailored “..allows people to get information“ personalised, tailored information“

“...regulated by the Financial Conduct “...regulated by the Authority (FCA) Financial Conduct and European Authority (FCA) equivalents” and European equivalents”

The Open Up 2020 Challenge

6

Insights from the challenge: Innovators and open banking 6.1. The ecosystem Take a moment to remember why open banking was mandated – to improve competition among financial services providers and consequently to ensure customers could get fairer, better, and more specialised products that suit their needs and financial lives.

Today, it is safe to say that the mandate from the CMA is being achieved via the open banking implementation roadmap. Open banking is now recognised as an essential element of the UK’s digital economy, reducing the barriers to entry for firms that want to serve consumers by accessing their banking data. This is a massive achievement, and there is no doubt that the UK is at the forefront of open banking implementation across the globe, bringing a major opportunity for future growth both in the UK and internationally.

The fintech ecosystem is building on the open banking platform with a laser focus on the consumer and with problem-first thinking. The economic shock arising from the effects of the COVID-19 pandemic really highlighted the agility and responsiveness of fintechs as they stepped up to deliver to UK consumers who were affected financially and the open banking platform was an important enabler for many new propositions to help struggling customers.

There were clear examples of this among the finalists who managed to pivot in a matter of weeks. For example, Tully launched a new online resource that helped people understand and access the payment relief they were entitled to. Portify concentrated on their users’ wellness (most of their customers have unpredictable incomes and were adversely affected by the pandemic) by providing actionable tips to build a financial safety net.

These initiatives, along with many others in the thriving ecosystem, were showcased in OBIE’s #PowerOfTheNetwork initiative. This illustrates the incredible agility and customer focus of fintechs which are innovating using open banking.

27

The Open Up 2020 Challenge

6.2. What has powered innovation Open Up 2020 supported 15 of the best consumer fintechs using open banking in the UK and engaged with the wider UK ecosystem. Through the challenge, insights into what has powered the innovation in this space emerged. Two major aspects that enabled the proliferation of new and innovative services for customers using open banking are explored below. The challenge team feel that they are key drivers of success of this new and emerging sector.

1. Building a trusted ecosystem with clear rules and guidelines Formed by the Competition and Markets Authority (CMA) to deliver Open Banking in the UK, the OBIE developed a set of rules, guidelines and tools to enable firms to join the open banking ecosystem, share data securely and swiftly via the APIs and implement the standards consistently.

Open banking’s clear rules and guidelines have lowered the barriers to entry for innovators, levelling the playing field to enable organisations to deliver value using data that once only the largest banks had access to.

As a result, there is evidence that entrepreneurs and innovators are building on the open banking platform – of the entrants to the Open Up 2020 Challenge, over 40 per cent were early-stage start-ups founded in 2018 or 2019. As of September 2020, there are 200 regulated organisations using open banking, up from 116 in June last year.

By creating a stable, trusted ecosystem with the safety of the consumer at the heart of it, open banking has opened up financial markets to new, agile firms who can innovate quickly to deliver on consumer needs.

2. Supporting the growth of strong aggregators Looking at the pool of 104 entrants, one of the most surprising insights was how many organisations accessed open banking APIs via a data aggregator (a third party providing AIS). 65 per cent of the entrants used an aggregator with 12 out of 15 of the finalists choosing this route to access customer data.

28

The Open Up 2020 Challenge

Exploring further, the reasons for this appear to be manifold: • Instant access to open banking APIs. It is quicker and easier for start-ups to get an easy, one-off interface to open banking data rather than developing their own API interface to each provider. Aggregators allow smaller organisations to go live in the market quicker and try out new concepts at lower cost and risk, as they can circumvent the lengthy FCA approval process to become an authorised AISP/PISP and costly development.

• Lower support costs When the APIs have downtime, having the aggregator rectify this with the banks means that smaller organisations aren’t using already stretched staff capacity.

• Cleaner data as standard About 40 per cent of the entrants to the challenge cited that poor quality of data (for example, merchant categorisation for transactions) as being one of the issues with the open banking platform. Finalists have spoken about having access to ‘cleaner data’ by working with a data aggregator rather than connecting directly to banks.

Aggregators are powerful enablers of current and future innovation in open banking, allowing start-ups to integrate speedily and cheaply and maintain their customer focus by facilitating swift ‘test and learn’ iteration of their products, often providing not only a sandbox but also a real testbed, replacing the services provided to innovators in the first Open Up Challenge.

It could be argued the reason that the strength of these aggregators is down to the OBIE roadmap – focusing first on the provision of open banking to SMEs and then secondly for consumers, enabling the staged development of organisations who are better placed to act as aggregators ahead of the focused development on consumer propositions.

Aggregator perspective: TrueLayer It is clear from entries that aggregators play an important part in the open banking ecosystem. TrueLayer was one of the first companies to be regulated as an open banking provider in the UK. It enables fintechs and other businesses to access customer banking data and initiate payments on a customer’s behalf.

They are the most commonly used data aggregator in the pool of Open Up 2020 entrants, used by a third of those connecting via an aggregator.

29

The Open Up 2020 Challenge

The challenge team spoke to Francesco Simoneschi, CEO and Co-founder of TrueLayer.

On why so many organisations are using an aggregator…

On how regulators should work with incumbents…

“[Authorities] initially thought that [open banking APIs] would get rid of aggregators by enabling TPPs [third party providers] to access bank APIs directly. In reality, fragmentation in how banks have implemented APIs meant aggregators could play a valuable role in the open banking ecosystem.

Allowing aggregators to maintain connectivity into all the different banks allows TPPs to focus on innovating their product and user experience, and are happy to delegate as much as possible to us.

“Regulators should hold banks to account where they don’t meet their obligations to provide well functioning APIs. However, on things like uptime and response times – which are quantifiable – the regulator should penalise poor performance against agreed levels. How well banks handle consumers when they are redirected for authentication is more difficult to quantify. However, we are lucky in the UK to have customer experience guidelines from the OBIE. Regulators should push banks to adopt these guidelines fully.

Beyond our connectivity role, TrueLayer also adds value by analysing and categorising data to help TPPs build better, more tailored products and customer journeys. For example, during the COVID crisis, our clients who serve SMEs were able to check on cash flow for their own clients and provide them access to emergency credit.”

On the burden of regulation for innovators…

“In the UK, the question of who needs to be regulated is determined by whether the business happens to be displaying a consumer’s bank data back to them.

If you’re not doing that, you cannot be authorised as an AIS. This places a lot of burden on some very small companies (i.e. PFMs), and risks locking larger aggregator type businesses out of regulation. At TrueLayer, we have navigated this by appointing agents who provide our account information services on behalf of TrueLayer. That means we can help smaller players into the market. We take on all regulatory responsibility for our agents’ AIS activities, meaning the consumer remains fully protected.”

However, I recognise that there also has to be an upside for the banks. They are mandated to provide large amounts of API technology for free. Beyond PSD2, there should be areas where the banks can benefit commercially and be incentivised to build great APIs. Once variable recurring payment APIs are delivered under the CMA order, they present a good opportunity to showcase how a commercial model could function between TPPs and banks.

On what’s next for open banking…

“Open banking is often thought of in terms of data, but it is also about payments. We have seen payment initiation growing 800 per cent in the last six months, and we see this as the biggest prize at the end of the open banking road – and then open finance of course! But there needs to be a more streamlined model of regulation for this to work and consideration of how to incentivise data holders to open up, rather than making it just about compliance. The user experience for payment initiation needs to be improved as a starting point. Certain CMA9 banks still have unreliable APIs and cumbersome flows which can lead to payments not being made and a poor customer experience. We need the regulators to focus on that to really boost take-up of PIS.”

Francesco Simoneschi CEO and Co-founder of TrueLayer

30

The Open Up 2020 Challenge

6.3. What’s needed to supercharge future growth While open banking has undoubtedly powered innovation in financial services within the auspices of the CMA order and beyond, there are still a few barriers to growth that need to be addressed, both for new entrants and those that already have products in the market.

By analysing the 100+ entrant pool for the challenge and surveying the 15 finalists, two main barriers have been identified that could enable even faster and widespread consumer uptake.

A. 90-day reauthorisation – it is time for change PSD2 legislation requires reauthorisation every 90 days, making many open banking products inconvenient for users. It often leads to high user attrition for fintechs which, in turn, increases costs and reduces lifetime value of customers.

More than a quarter of entrants to Open Up 2020 felt that this issue was holding their products back from scaling and the issue has become more acute after the screen scraping switchover. A third of the finalists stated that if there was one feature that would improve their proposition to customers, it was the removal of the 90-day reauthorisation. The judges also noted that the 90-day authentication was standing in the way of financial sustainability in European markets for some fintechs.

This is our biggest challenge at the moment. Through the Nesta programme, we’ve managed to considerably improve our drop off rate at connecting to open banking, but our new biggest drop off rate is the reconnection at 90 days.

Finalist

The three-month reset of the bank connection is a challenge... A short connection creates friction and risks impacting the quality of service we can offer our customers. For example, if the connection is lost and the customer doesn’t notice, and they have grown to rely on our credit utilisation, low balance and bills alerts, this could negatively impact their financial standing. A more optimal balance between customer friction and data protection could be achieved by extending this three month reset to something closer to six.

Finalist

31

The Open Up 2020 Challenge

Finalists collectively expressed that while protecting users and ensuring they trust the platform via Strong Customer Authentication (SCA) is essential, keeping customer experience front of mind is also crucial to making it a success.

Suggestions from finalists included that the directive could either be changed to allow customers to re-authorise within the app they’re using rather than their online banking service, making it cleaner and more efficient for consumers. Another option is to extend the time frame for re-consent to be less of a ‘nuisance’.

B. Variable Recurring Payments – a game changer for many The second most quoted issue from the finalists has been the lack of variable recurring payments functionality. Users have to authorise individual payments every time a payment is made at present, meaning many finalists instead use direct debits.

Variable recurring payments (VRPs) functionality would enable customers to authorise a third party provider to make a number of payments without the need to get new authorisation. This is essential for payments, e.g. utility bills and subscription services and would preclude the need to set up direct debits. Recurring payments were not mandated under PSD2, but the functionality is in OBIE’s roadmap for delivery.

VRPs will reduce unnecessary friction of actionable nudges and allow us to accelerate the ability for consumers to reach their goals and achieve financial wellness.

Finalist

VRPs would enable us to minimise credit risk and thereby open up our eligibility criteria to a wider section of the population.

Finalist

From a consumer perspective, this is often something they perceive should just work – and reviews on Trustpilot and app stores often relay frustrations with payments taken via direct debit where there are often delays and limited control once a payment has been scheduled. In their report Locked In, Citizens Advice highlighted that existing payment mechanisms can support a ‘subscription trap’ where consumers pay for services that they no longer use due to the complexity of cancelling.8 The quick delivery of this functionality would be welcomed by many fintechs and will remove friction from the customer journey.

32

The Open Up 2020 Challenge

6.4 Lessons for other markets and sectors Although open banking is now making strong traction, there are some key insights that other markets and sectors should take note of to ensure fast growth from the start.

A. Make consumer protection and citizen data rights easy to understand

Only a third (38 per cent) of people think they know the consumer protections that exist around sharing financial data. Those aged 25-34 feel they are most in the know, with 51 per cent feeling aware, but of those aged 75+, only 29 per cent feel they know their rights.3 One of the main reasons that finalists feel open banking adoption has not progressed as quickly as it might have is that even now, there is still an issue with consumer trust.

Our view is that the biggest issue … is consumer trust, but we are not sure how [further] standards would fix that.

Finalist

Learning from comments on press articles such as this piece in Which? Conversation, it is clear that important considerations for a consumer when sharing data include: What data am I sharing? What do I get in return? Who has my data? Where is it stored?

What can it be used for? What could go wrong? Who can I turn to if something does go wrong?

With open banking, more than two thirds of people in the UK want to be confident their data is safe and there will be penalties if something goes wrong – this is particularly true for older age groups. Only 35 per cent would trust an unknown regulated company to look after their financial data – highest among 18-34 (53 per cent), falling to 42 per cent for 35-44 and 17 per cent for 55+.3 For open banking, the answers to these questions can be more complex than it first seems due to the different regulation categories – for example, sometimes a fintech doesn’t hold FCA authorisation – either as an agent or directly, as they do not ever process the data themselves (known as a ‘non-AIS’ service provider in regulation).

Most customers who get in touch with their bank say their bank support team had never heard of us or open banking – and hence the customer immediately assumes a scam is afoot.

Finalist

33

The Open Up 2020 Challenge

Finalists found a sponsored article in This is Money titled ‘We reveal when to share your banking data and how to do it safely’ incredibly helpful to call out that their solutions were safe – but even this article struggled to convey the complexity of regulation, calling out that consumers should check FCA register before using a service.

Finalists highlighted that this kind of coverage earlier on in the introduction of open banking could have been really valuable.

We would like to see more PR around the uses of open banking, why it’s easier for consumers, and most importantly, why consumers should not be nervous about giving open banking consent.

Finalist

In Open Up 2020 research into what messages made people trust open banking, results showed that messages of credibility and security were very important in building trust – consumers expect to hear how open banking is governed and respond well to mentions of well-known and trusted entities – in the case of open banking, the UK’s largest banks and the FCA. Customers want to see evidence and proof points.

For other markets and sectors, it is evident that to make the consumer’s experience better and engender trust in a new system is to have clear, simple consumer protection guidelines that are well communicated by trusted entities from the start.

Options for open finance that have been suggested include a ‘safety agreement’ between the consumer and industry or a consent standard that all regulated providers would need to adhere to which was recently proposed in a piece of research on smart data.9

34

The Open Up 2020 Challenge

B. Holding data providers to account.

At the beginning of the challenge, nearly 40 per cent of the entrants to the challenge raised the issue of poor quality data from providers – in particular inconsistent or non existent categorisation. Other complaints included system availability and downtime.

Over the past 12 months, finalists have reported an improvement in data quality, API availability and response times. However, the OBIE targets of 99 per cent availability have only been reached for three out of the past 12 months10 – a target that would be unacceptably low for any other public infrastructure, which understandably leads to frustration for fintechs and their customers.

We need clear guidance and timings on new features, and we need them to come to market more or less fully formed. The challenges we have faced have been dealing with banks where their systems just weren’t ready, and therefore we have done a lot of ‘QAing’ of their systems which has been a lot of work and a little frustrating.

Finalist

Feedback from the finalists also stated how difficult it was to get a response from some bank support staff. This is one of the factors that has led to the use of aggregators by TPPs to access open banking APIs. Challenger banks are often held up by technical teams as exemplars of providing reliable, consistent APIs with dedicated support as well as understanding that all can benefit from a truly open banking system.

We’d like to see more banks adopting open banking and the ones that do, to improve their connectors and APIs. Finalist

Lessons from innovator experience in open banking suggest that other markets and sectors should focus on incentives for data providers to ensure high quality data, infrastructure and support from the beginning to ultimately enable a better consumer experience.

One approach to achieve this could be to take a ‘two track’ approach in roadmap development , with a longer-term, infrastructure focused track driving operational resilience for core functionality together with a short-term, agile track enabling new features to be changed and adapted quickly on top of the underlying infrastructure based on consumer use and feedback.

So many good standards are optional rather than mandatory. In order to build amazingly useful tools that will drive consumer adoption, we need better quality data. It’s the consumer’s data, and yet, the banks still have a better view on it than any third party provider.

Finalist

35

The Open Up 2020 Challenge

C. Inclusive design: starting with vulnerable consumers Open banking has demonstrated its power to unlock innovation in financial products that are hyper-focused on consumer needs, whoever that consumer may be. The Challenge has highlighted some groundbreaking products that support consumers whose needs are currently underserved by traditional banks – such as young people, those with unpredictable incomes and those with health and other issues that make them more vulnerable to fraud and scams.

An incredible 80 per cent of entrants to Open Up 2020 stated that they were addressing financial inclusion through their offering, some of whom were focusing on vulnerable consumers – an area that the output of the Smart Data Review11 has cited as being of particular focus.

A key insight from the finalists into how vulnerable consumers can be supported through open banking – particularly those suffering from mental health issues or dementia – has raised a key question on how open banking has been designed from the outset.

Open banking requires consumers to be using online banking; this is seemingly a super simple way to enable consumers to quickly and easily authorise, manage and revoke access to their data to new services. However, whereas 75 per cent of all UK adults have checked their balance online in the last 12 months, this figure drops drastically for those aged 75+ – only 32 per cent of adults aged 75-84 and only 25 per cent of those aged 85+.2 One of the finalists, Touco, reported that many of their users had to first apply for online banking before using their solution – making onboarding complex and meaning the benefit of keeping online banking credentials more secure wasn’t realised – as typically a carer or loved one supported the vulnerable user to set up online banking.

Other sectors and markets could consider using inclusive design at the beginning of standards and regulation development – ensuring that underserved and vulnerable consumers can easily access and benefit from the new technology and not increase any digital divide.

You can read more about Touco’s experience working with vulnerable people on challenges.org

36

The Open Up 2020 Challenge

7

What’s next?

7.1. Open finance and beyond Open banking is working for consumers today, but open banking regulation is currently focused on current accounts. It is clear from the breadth of finalist offers that consumers and innovators are ready for more – supporting consumers throughout their financial lives. The potential for Open Finance is now clearer, with a strong case to move into more financial products from consumers and innovators.

We always talk in terms of ‘open finance’ even though we championed open banking. Open finance is where [we] started, as in order to improve financial wellness, all products should be included to give the full picture and clarity that you need.

Finalist

For consumers

For innovation

Consumers want to be able to take control of their whole financial lives – not just their current accounts. With open banking now used regularly by more than two million people, there is clear demand for more.

More than half of consumers (58 per cent) say regulators should be proactively encouraging innovation and technology developments in their sector.3

Over 50 per cent of the UK say they would like to be able to manage all of their finances in one place.3 Over four in ten people agree they would like to be able to quickly and securely share their data to get the best deal on financial products such as mortgages, loans and insurance and services – for example, mobile contracts, electricity, gas and water.3 More than half (56 per cent) say there should be more technological developments in financial services to bring them into the 21st century, which rises to 74 per cent for those aged 18-34.3

37

Open banking has opened the door to new entrants into the financial services sector – and a flood of innovation has followed.

For this innovation to be sustainable, innovators highlight the need for open banking to go further, enabling them to deliver more value to consumers by being a single source of truth.

Innovators and judges highlighted how open finance, looking in particular at pensions, mortgages and insurance, would enable innovators to adapt and strengthen their business models, increasing the likelihood of long-term, sustainable success for these new entrants.

The Open Up 2020 Challenge

Glossary AIS/AISP Account Information Services/Account Information Service Provider* APIs

Application Programming Interfaces

ASPSP

Account Servicing Payment Service Provider*

BEIS

Department for Business, Energy & Industrial Strategy

CBPII

Card Based Payment Instrument Issuer*

CMA

Competition and Markets Authority

CMA9

The nine largest UK banks, required by the CMA Order to participate in and pay for the Open Banking project. They are: Lloyds, Barclays, Nationwide RBS, Santander, Danske Bank, HSBC, Allied Irish Banks and Bank of Ireland.

FCA

Financial Conduct Authority

OB

Open Banking

OBIE

Open Banking Implementation Entity

PFM

Personal Finance Management

PIS/PISP Payment Initiation Service/Payment Initiation Service Provider* PSD2

The revised Payment Services Directive*

SCA

Strong Customer Authentication

TPP

Third Party Provider*

VRP

Variable Recurring Payment*

*Read more about the regulatory terms for open banking at openbanking.org.uk/about-us/glossary

38

The Open Up 2020 Challenge

Endnotes 1. Opinium, on behalf of Nesta Challenges, interviewed 2,004 UK adults between 9 and 15 July 2019. Data has been weighted to nationally representative standards.

2. The financial lives of consumers across the UK: Key findings from the FCA’s Financial Lives Survey 2017, https://www.fca.org.uk/publication/research/financial-lives-consumers-across-uk.pdf 3. Opinium, on behalf of Nesta Challenges, interviewed 2,000 UK adults between 22 and 24 September 2020. Data has been weighted to nationally representative standards. 13 million figure is calculated based on 25 per cent of ONS mid 2018 population estimate of 52,383,965 people aged 18 and over in the UK. 4. Consumer Priorities For Open Banking, June 2019 https://www.openbanking.org.uk/wp-content/ uploads/Consumer-Priorities-for-Open-Banking-report-June-2019.pdf 5. Which? Mortgage Survey 2019 https://www.which.co.uk/news/2019/01/four-in-10-younghomeowners-had-a-mortgage-application-rejected 6. Opinium, on behalf of Nesta Challenges, interviewed 2,002 UK adults between 31 March and 3 April 2020. Data has been weighted to nationally representative standards.3 7. UK Strategy for Financial Wellbeing, Money and Pensions Service https://www. moneyandpensionsservice.org.uk/uk-strategy-for-financial-wellbeing 8. Locked In, Citizens Advice Bureau, 2016 https://www.citizensadvice.org.uk/about-us/policy/policyresearch-topics/consumer-policy-research/consumer-policy-research/locked-in-consumerissues-with-subscription-traps 9. Smart Data: research on consent, liability and authentication, Department for Business, Energy & Industrial Strategy, August 2020 https://www.gov.uk/government/publications/smart-dataresearch-on-consent-liability-and-authentication 10. API Performance, Open Banking https://www.openbanking.org.uk/providers/account-providers/ api-performance 11. Smart Data Review, Department for Business, Energy & Industrial Strategy and Department for Digital, Culture, Media & Sport, September 2018. https://www.gov.uk/government/publications/ smart-data-review

39

58 Victoria Embankment London EC4Y 0DS challenges.org @NestaChallenges www.facebook.com/NestaChallenges www.linkedin.com/company/nesta-challenges Nesta is a registered charity in England and Wales with company number 7706036 and charity number 1144091.

Registered as a charity in Scotland number SCO42833. Registered office: 58 Victoria Embankment, London, EC4Y 0DS.