The Building Societies Association (BSA) commissioned economic consultancy Frontier Economics to model the impact of Open Finance on building societies, the wider UK savings market and the knock-on effect this could have on mortgage lending.

What the research found

Open Finance is the next stage in the evolution of Open Banking, using data standards to open up a broader range of financial services products.

The research modelled this next stage, with UK consumers able to use Open Finance to rapidly move savings balance and open new accounts.

In the savings market, a personal finance app could use Open Finance data to give personalised information, or potentially move a customers’ savings automatically to earn the highest available interest rates, or automatically transfer them to their current account to meet upcoming bills.

The research found this would have major consequences for the savings market, including large scale, rapid switching of savings between providers and providers less keen to attract new instant access accounts  them in the first place and lower introductory rates on these products

This increased competition for savings balances could have a knock-on impact on other markets if providers seek to offset these increased costs, with a potential knock-on increase in mortgage costs.  

The report highlights a number of approaches legislators and regulators could take to develop Open Finance, without having an unforeseen impact on savings product pricing and availability, mortgage pricing and widening digital exclusion by enforcing digital services on organisations and their customers. 

Suggestions include:

• Requiring app and other third party providers to notify savings providers prior to any transfer of funds and intended flows of customers and balances

• Limiting the value of transfers out of any single savings provider, such as setting limits for the total value that can be transferred out per day

• Permit savings providers to refuse transfer requests based on transparent criteria on current and future movement of savings funds

• Ensure regulations are flexible enough to allow providers to respond to emerging shifts in funding markets

• Ensure that the costs of complying with Open Finance regulation are fully proportionate and not excessive relative to the size of mutuals like building societies and credit unions

To read a summary of the report, click here.

A copy of the full research can be found here.