What Affect Will the CMAs Banking Report Have on Fintech?
At the start of February, the Competition and Markets Authority published its final order for banking.
But while the report does talk about open banking and refers to the use of open APIs across the nine largest banks in the country, it does not focus on FinTech solutions.
So what does the report actually tell us, and how much further could it have gone?
1). Challenger Banks and FinTech Solutions Will be at a Disadvantage:
While the Competition and Markets Authority should be there to ensure an adequately level playing field, this report is heavily biased towards the established banks.
Business and Technology consultants Baringa have made this case too.
For example, to be included in scores related to their services financial institutions would need to have over 150,000 active current accounts in Great Britain, or 20,000 in Northern Ireland, as of 31st December 2016.
Clearly this will provide an advantage to the incumbent banks, and hinder most FinTech-based challengers.
The reason why this has happened is self-evident – the lack of material representation from the Fintech sector, which has meant that the input for the review has been heavily dependent on the banks.
2). Fintech’s Role in Data Management and Protection:
With fintech solutions leading the way on data management and protection, the CMA should be looking to fintech as a solution to open up competition in the banking sector, but only a limited number of fintech firms will have access.
While Scott Carey at ComputerWorldUK refers to UK challenger banks like Atom and Monzo, it is likely that very few businesses in the fintech sector will actually benefit from this new open banking ecosystem.
3). Unrealistic Requirements for Fintechs:
There is undoubtedly a security risk when looking at open APIs, so there will need to be an element of due diligence and on-going trust between banks and those third party fintech companies.
As ComputerWorldUK sees it though, fintech firms have already raised concerns that the banks may impose unrealistic criteria in order to limit the number of entrants into the market.
4). A Lack of Promotion for Pre-Built Software for Challenger Banks:
Proven software solutions are saving businesses the time and money required to enter the marketplace, so the lack of promotion of these platforms is disappointing for the fintech industry too.
These platforms are enabling challenger banks to enter the market, so by limiting the number of fintech businesses who provide software platforms the CMA has limited the number of challenger banks.
While FinTech is an important part of the financial services sector in the UK it is clear that it faces a struggle on two fronts, the first being Brexit and the problems it brings with passporting, and the second being competition and the monopoly of the established banks.
As the sector faces these challenges, businesses need to ensure their fintech solution is proven and rigid enough to withstand any potential threats, but also flexible enough to respond to regulatory changes.
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