The introduction of current account data sharing and “read and write” access for third parties through Open Banking was the result of unprecedented regulatory intervention in UK financial services to promote competition in retail banking.

Open Finance could take this a step further and potentially enable “read and write” access to more financial services, including savings.

Our recent work with the Building Societies Association explores the potential impacts of Open Finance in the UK cash savings market as a whole and for building societies in particular, and the considerations that regulators should take into account as they develop Open Finance further.

Our report sets out five potential impacts from Open Finance on the UK savings market:

• A reduction in bonus rates for instant access savings products. Open Finance may facilitate increased customer switching from standard rate instant access products. This may lead to a reduction in the introductory bonus rates that savings providers are able to offer on instant access products.
• An increase in average savings rates. Third party providers can help customers identify where they can reduce access to their savings in exchange for better rates on fixed term products. This could lead to customers earning higher average interest on their savings across the market. A knock-on impact from this may be an increase in UK mortgage rates as the cost of funding through retail deposits increases.
• Increase in deposit stability for providers. If customers optimise their savings towards fixed term deposits to secure higher rates, there may be a reduction in liquidity risk. But, there may be a offsetting effect of an increase in liquidity risk on instant access products, which may become more prone to switching.
• More active management of savings balance sheet and pricing. The increase in switching due to interest rate differentials may require providers to change their hedging strategies and adopt a more active (and a more costly) approach to managing their balance sheet and pricing.
• An increased use of restrictions for accessing savings balances. Providers may introduce access restrictions (such as notice periods or withdrawal penalties) to prevent large-scale automatic switching triggered by third party providers, which would reduce the availability of instant access products.

Building societies play a unique role in the UK financial services sector and could face some unique opportunities and risks as a result of these market changes.

Our analysis shows that building societies are on average less exposed to switching in instant standard rate products and could benefit from increased switching in the rest of the market. On the other hand, the data systems and balance sheet management strategies used by building societies today may require a bigger adjustment to Open Finance than those of other savings providers. The implementation costs of Open Finance could also be more disproportionate for building societies than for other providers due to their small size.

The Steps to Expanding Open Finance 

If UK regulators and policy makers decide to move forward with Open Finance, they should balance the potential customer benefits against the potential market changes and risks identified above.

1. Regulators should be conscious that pricing may change both in savings and mortgage markets.
2. Third party providers that operate Open Finance enabled services in cash savings should face obligations to help manage risks to the stability of providers from automatic switching. This may include:
   • Confirming that the savings provider is willing to accept balances, if the transfer meets certain criteria (such as if it above a certain transaction value).
   • Limiting the value of transfers out of any single savings provider in a given time period, and providing a schedule for future payments to the savings provider.
3. Cash savings providers should be permitted to:
   • Choose the level and type of customer balances they wish to accept when a third party provider requests a transfer, including choosing not to accept some or all balances.
   • Introduce products that require notice for withdrawal.
   • Reduce the availability of instant access products to third party-managed cash savings.
4. Regulators should ensure that the costs of complying with Open Finance regulation are proportionate relative to the size of savings providers.