This post is the first of an epic five part “concept album” on Open Finance in the Long Term Savings market.  (Still a better concept than the stuff YES produced in the 70s) 

In my other posts I will cover what providers will have to do, what data and functionality will be offered, the uses the data might be put to and how I think open finance will impact the long term savings market.

But first, how will we actually get to the starting point?

Compulsion

Open Banking and Pensions Dashboard would not happen without compulsion by government and I see no reason this will not be the same.  Firms take a view that the customer data they hold is precious and there is not enough benefit for them to share it without being made to.  This is just a given really.

Where it gets interesting is, who will be the body to drive this?  With Open Banking it was the Competition and Markets Authority as remedies to its investigation into the retail banking market. With Dashboard it was the Department for Work and Pensions via parts of the Pensions Act.  

At the moment it feels like the ball is still with the FCA, who initially consulted on Open Finance way back in 2019/20.  Then Covid happened and the ball is now somewhere in some very long grass.  So perhaps the Open Banking Authority may take up the ball and move Open Banking principles into long term savings.  Really it’s wait and see at this point.

Regulation

Even if the FCA are not driving the bus on Open Finance I would expect them to have a big part to play on the regulation side.  In order to use Open Finance data, a firm will have to have permissions from the FCA in order to receive the data. 

To get the permission, a firm will have to prove their technical and security competence, have a business plan in place, etc.  It will be quite a process if the Pensions Dashboard proposals become the wider standard. 

Where there is more debate to be had is, will the more permissive models of Open Banking be the norm or will the more paternal view of the proposed Dashboard regulations be taken?  For example will firms be allowed to store the data?  I would advocate a more open market as I see this leading to better customer outcomes in the long term.

Governance structure

Simply put, who will make the decisions?  This is where I strongly advocate that the Open Banking model be implemented.  Put somebody in charge and give them the authority to make decisions.  If the process goes into the full labyrinth of government departments or is made up of multiple organisations like Pensions Dashboards was it will add 3 years to delivery. 

What products?

We will already have pensions but what other products will Open Finance cover?   Obvious products for me are at retirement options such as annuities, drawdown and pensions in payment from DB schemes.  On top of that I would fully expect ISAs, GIAs, bonds and other modern investment products to be included –  i.e. whatever one might find on a platform. 

What I suspect we may not see initially is legacy products such as PEPS or LISAs, etc.  Essentially the 80/20 rule will be in place and the big money is in ISAs and Pensions.   And it may be that it’s DC pensions first. 

Architecture design

One for the IT nerds here.  But there is a fundamental difference between how Pensions Dashboard and Open Banking is designed. Which model to use needs to be agreed at the early stages as it will impact the rest of the process of design and build.

For Open Banking, with a relatively small number of providers, it made sense to go with an open API model.  It’s based on the user knowing they have a bank account and have all the details handy.  

Pensions Dashboard, with hundreds of providers and the need to search for policies customers may not know they have, required a different model.  The central hub built and run by ORIGO acts as a clearing house for the find requests. 

Given the difficulties encountered with the hub model it is tempting to go with the open API model but with the large number of players in the LTS market this is not a given.  

I suspect we will end up with the open API model but that very quickly a market will exist for middleware to handle the API connectivity for providers, like the ISP model we are seeing in Dashboard.

Next we shall look at what open finance may offer.