Opening the door to Open Finance: understanding the impact of Open Finance in the cash savings market on the building society business model

Chair: Amber Boodt, Head of Digital Payments - Nationwide

Leon Ifayemi, Director of Coalitions and Research – Centre for Financial Innovation and Technology

Kristine Appleton, Economist – Frontier Economics

Economic consultancy, Frontier Economics, talked through the research it has recently completed for the BSA which modelled the impact of Open Finance in the cash savings market, in particular the impact on building societies, which have around 20% of the savings market. 

Open Finance is an expansion of Open Banking to other services such as savings, where third party providers (TPPs), can move customer money, including opening accounts. This activity is likely to change the type of products that people use for their savings. Currently, the vast majority of savings are held in instant access accounts, where rates are generally lower, and this is where TPPs can have the biggest impact.

The impacts expected include:

  • Reduced bonus rates

  • Increase in average savings rates (25-48 bps)

  • Deposits become more stable for providers, as more money is moved to (higher rate) fixed-term accounts

  • More active management of savings balance sheet and pricing

  • Increased use of restricted access accounts 

  • Increase in mortgage rates (up to 21-41 bps)

Opportunities for mutuals

  • Less exposed to increased switching in standard rate products 

  • Reduction in savings rate for some to attract balances

  • Benefit from increased stability, as more money held in fixed-term accounts

  • Better customer data

Risks for mutuals

  • Need for new systems and pricing strategies

  • Cost burden of implementing Open Finance

  • Regulatory restrictions on balance sheet compositions

  • Money moving around too quickly. This could include those receiving funds not having the capacity to process, and large amounts of money being moved out of an organisation overnight. 

  • The impact will not be linked to a building society’s size, but rather the business model.  Those with a large number of customers on low instant access rates are likely to be impacted the most.

  • The biggest risks are around liquidity/money moving around – rather than cyber-security.

Regulatory action is required to support the market to successfully implement Open Finance:

  • Third parties should be obligated to manage risks. This could include sending notifications to product providers before transfers take place and having a limit on the value of transfers.

  • Savings providers should be allowed to control balances e.g. a need to accept transfers or impose notice periods on products.

The panel acknowledged that Open Banking hasn’t really taken off, but we can’t predict what will happen with Open Finance. This will in part be dependent on the regulatory design and how TPPs develop apps, with the greatest opportunities for them being in savings and investments and pensions and credit.

You can read the Frontier Economics Open Finance Report here.