Abstract
Open banking was heralded as the key to promoting competition in UK retail banking markets. After a slow start the post-pandemic uptake of open banking tools suggested that a second financial services revolution was indeed underway. Yet by 2024 there were also clear signs that the so-called silent revolution had failed. The aim of this paper is to explain why. Using Culpepper’s (2010) concept of ‘noisy politics’ we argue that against the background of disillusionment with incumbent banks a more incisive, pro-reform statecraft emerged during the design of open banking (2015-18); under these conditions incumbent bank power waned. However, the return to ‘quiet politics’ – compounded by the political uncertainty surrounding Brexit and the delegation of authority to technocratic institutions – allowed incumbent banks to slow the implementation process (2018-23) and reorient their strategy towards acquisitions and partnerships with technologically agile fintech firms. In so doing bank power reasserted itself, stymieing the progress of open banking reform.
Introduction
Until relatively recently retail banking in the UK was deemed highly uncompetitive (Office of Fair Trading, 2007). Despite the internationalisation of the City of London since the 1950s and the Big Bang legislation of the 1980s – labelled the (first) financial services revolution by Moran (1990) – the UK had one of the most concentrated retail banking systems in Europe (HM Treasury 2011). Four banks dominated lending to small and medium-sized enterprises (SMEs), as well as mortgages and personal current accounts (PCAs). In 2014, these banks accounted for 80% of active Business Current Accounts (BCAs) and 70% of active PCAs (CMA 2015b: 10). Moreover, at that time only 13% of SMEs trusted that their banks were acting in their best interests, only 25% believed that they supported their business, and there was extensive data showing that existing customers were not offered competitive rates. However, paradoxically, both BCA and PCA customers tended not to switch accounts (CMA and FCA 2014). These were, according to conventional economic policy wisdom, all symptoms of a dysfunctional and uncompetitive retail banking market (Vickers Report, 2012: 153).
In the decade after 2013 the situation changed dramatically. A range of challenger banks – including now household names Monzo, Revolut and Starling – gained market share in the retail banking sector and by 2023 the UK became home to more than 1600 fintech firms, many of which also offered ‘bank-like’ services (FT Advisor 2023). The year 2017 marked a step-change in the move towards ‘open banking’, which refers to ‘a regime in which banks, either voluntarily or in response to legislative or regulatory requirements, provide access to customer information in secure, digital form – with the customer’s express consent – to third-party service providers’ (Nicholls 2019: 122). New market entrants were actively promoted by key policy changes, such as a revised bank authorisation process, and HM Treasury publicly celebrated the issuing of new bank licences (Boden 2020: 179). Fundamental retail banking sector change appeared to be materialising and policymakers declared that the UK’s open banking experiment had ‘taken the world by storm’ (HM Treasury 2021a: 4).
Yet by 2024, despite proclamations of its successes by political elites, many of the symptoms of weak competition were still apparent (FCA 2024). Figure 1 shows bank concentration in the UK, measured by the assets of the three largest commercial banks as a share of total commercial banking assets. It highlights that after a decline in the post-financial crisis years, by 2015 the market share of the biggest firms had again begun to rise. A range of other indicators support the conclusion that ‘despite new entrants to the sector, there has been little change to market concentration since the separation of Lloyds and TSB in 2013’ (SMF 2021: 9). Between 2015-19 for example, where customer switching rates – a useful proxy for the level of competition – in electricity and gas markets had risen from 12% to 20%, those for retail banking in the UK had remained static at around 2% (ibid.). Bank Concentration in the UK (% annual, not seasonally adjusted). Source: World Bank 2020.
Responses to ‘Are You Satisfied With the Service Quality of Your Bank?’
Source: IPSOS Mori (2024).
Our main research question is therefore, why did Open Banking not live up to expectations? Our central claim is that increased usage of open banking applications – the metric typically referred to as a proxy for the success of the initiative – hides the fact that a lack of effective competition still dominates UK retail banking. By drawing on Culpepper’s (2010) concept of ‘Quiet Politics’ we advance the following argument: that in its early phase (2013-18) a period of ‘noisy politics’ prevailed, following the global financial crisis. Public discontent had damaged the credibility of the largest UK banks, and political malaise followed from the failed attempts to induce these same banks to support the UK’s economic recovery. This made banking reform a highly salient issue. Whilst an ‘informal contract’ (Cruickshank 2000: vii) between the state and the largest UK banks had long prevailed, by 2013 the implications of the lack of effective market competition in retail banking had produced a problem which the state could no longer avoid (Hardie and Macartney 2016). Open banking was the project which fell into the laps of UK policymakers at a time when the power of the largest banks was at a historic low.
By 2018 however, banking reform had entered a second phase characterised by the return to ‘quiet politics’. We explain the reassertion of bank power that led to stymied competition despite increased use of open banking applications in three subsections: firstly by showing the return to quiet politics characterised by banking reform’s dwindling salience and the delegation of authority for implementing open banking to the independent Open Banking Implementation Entity (OBIE); secondly, by showing that the political context had changed following the Brexit decision, which contributed to a shift in priorities for the Treasury and UK regulators; this shift, compounded by the lack of oversight of the OBIE by the CMA, enabled, thirdly, a slowdown in implementation as banks dragged their feet (Interview 20240815, 2024). This slowdown allowed banks to change strategy from a defensive approach – resisting open banking – to forming alliances with smaller fintechs to capitalise on technological developments whilst maintaining their market share.
However, our paper goes beyond certain assumptions of the quiet politics approach. Firstly, according to the established reading, low public salience is the main driver of high levels of influence by corporations (Culpepper 2010:190). Whilst, secondly, the mechanisms through which business tends to dominate are located within technocratic institutions because, inside these institutions, ‘practitioners are in a privileged position to shape debates and the resulting regulatory frameworks according to their preferences’ (Gava et al., 2022: 161). In contrast, we argue – in relation to the first assumption – that low public salience was a necessary but insufficient cause of the return to bank influence. The changing political environment – most closely connected to Brexit and then COVID-19 – played as important a role as waning public interest in banking reform. Whilst secondly, we show that bank influence was not exerted within institutions, but via their market power as the largest incumbent players in retail banking itself.
Much emphasis has rightly been placed on the changing face of banking supervision in the eurozone (De Rynck 2016; Glöckler et al., 2017) and post-Brexit financial policymaking (James and Quaglia 2023), yet relatively little has been written on the policies that have brought about open banking specifically, in either the EU or the UK. Without doubt developments in digital data-driven technologies played an important role in the rise of challenger banks and fintech firms, including those associated with the emergence of platform capitalism and platform political economy of fintech over the last decade (Clarke 2019; Clarke and Tooker 2018; Hendrikse et al., 2018; Langley and Leyshon 2017; Macartney et al., 2021). The form of statecraft we identify and map in this article parallels those lines of scholarship that have stressed the crucial role of the state in the development of fintech in different contexts. For instance, Jain and Gabor (2020) focus on the foundational role of the state in the creation of digital infrastructures around which financial systems are built in India. Likewise, Gruin and Knaack (2019) suggest that the Chinese Communist Party had a pivotal role in initially promoting and supporting fintech growth because it fit with the political economic priorities of Chinese developmentalism. Our analysis of the UK context suggests that the active and sustained involvement of the state was necessary for fintech challengers to meaningfully challenge incumbent banks. It might be expected that in a liberal market economy such as the UK, the state would not play such an active role in the promotion of a particular sector of finance but, at least in the era of ‘noisy politics’ surrounding retail banking reform, it did just that.
In section one, we locate the recent developments in retail banking within debates about bank power and the concept of ‘quiet politics’. In section two, we trace the retail bank competition policy of the British state by focussing on decisive moments in the design of open banking (2013-2018), while section three serves to analyse its implementation, drawing attention to its limits in more recent years (2018-2023). Our account draws on an extensive reading of over a hundred policy documents produced by the Treasury, the CMA, the FCA and the FPC between 2013-23, as well as several hundred industry responses, and a series of semi-structured interviews with banking industry and regulatory officials, only a handful of which are referenced here due to confidentiality agreements.
Bank power and competition policy in the UK
The 1980s Big Bang deregulatory effort can be characterised in terms of an attempt to ‘spur competition by opening markets that were previously segmented’ (de-Ramon and Straughan, 2020: 959). Yet, two decades later, the UK’s retail banking system remained one of the most concentrated in Europe. Though many Western European banking systems bear certain similarities to the UK, with large universal banks enjoying domestic dominance, they also often have a range of small or medium-sized banks meaning that the largest banks typically only occupy 40-60% market share (Epstein 2014). In the UK, by contrast, the largest four banks have historically held 80-85% market share in SME lending and PCAs. On most accounts, the result of this market concentration tends to be distorted prices, rates, and services offered to businesses and customers. This is certainly the interpretation that holds in conventional economic policy wisdom and that successive reports have adopted in descriptions of the British banking system pre-2014 (see e.g. Cruickshank, 2000; PCBS 2013).
The British state had been complicit in maintaining this level of market concentration in domestic retail banking. Despite the fact that the British state promoted competition in wholesale markets (broadly, investment banking) post-1980s, UK policymakers had done little to actively promote competition in domestic retail banking (Hardie and Macartney 2016). The consensus view appeared to be that political elites were willing to overlook cartel-like practices amongst large banks since these firms were seemingly acting in the ‘national interest’ and serving broader economic activity, at least in terms of annual tax revenues and contributing to GDP. For example, the Cruickshank (2000) referred to the banking system as a ‘limited oligopoly’ that was maintained by an ‘informal contract’ between the state and the largest banks. Throughout the 2000s no less than a dozen official reviews began to highlight the undesirable features of this limited oligopoly and expressed a need for reform (see CMA 2016 for an overview). However, by the time of the Independent Commission on Banking Standards (ICBS) report (Vickers Report, 2012) and the Parliamentary Commission on Banking Standards (PCBS) review (2013), very little progress had been made in promoting greater competition.
The relative acquiescence of the state to the dominance of a limited number of institutions in retail banking can be theorised in terms of bank power. With their origins in the work of Lindblom and Block, theories of business power suggest that corporate influence comes from two main sources: one is the state’s structural dependence on private enterprises for investment and growth; whilst the second focuses on the instrumental lobbying capabilities of firms. The structural approach argues that ‘capitalists can exert pressure, threaten, and enforce their interests indirectly vis-à-vis state and society’ (Babic et al., 2022: 135). Whilst the instrumentalist approach holds that specific actors ‘actively, consciously and often collectively attempt to influence the decisions of the state’ (ibid., also see Culpepper 2015 for an overview).
Though both instrumental and structural approaches have enjoyed something of a renaissance in the post-crisis period several key criticisms have also arisen. The first involves the tendency to overstate the power of banks (Macartney et al., 2020). The fact that a legislative article may appear favourable at best, or relatively agnostic at worst, to the regulated private market actors is, according to critics, insufficient evidence to validate the claim that private actors shaped public policy. A second, related, line of criticism has focused on the fact that once we move beyond measuring instrumental power by analysing the direct influence of banks on the policy process, the alternative form of (structural) power is harder to identify (Culpepper 2015:394). Thus structural power is often considered a more abstract power type. In turn, generalisable conclusions about the state of bank power are made problematic by, first, the somewhat interminable debates about establishing whether structural or instrumental power are at work; and second, by the fact that legislative outcomes are an uncertain proxy for identifying the success or failure of bank influence, especially in the face of variance across different jurisdictions.
One useful alternative which sidesteps these obstacles is the work of Pepper Culpepper which, we argue, provides fruitful insights into open banking and the failure of the second financial services revolution. The central argument of Culpepper’s ‘Quiet Politics’ as far as it concerns our paper, is that private organisations generally have a greater capacity to influence the policy process under conditions of low political salience (2010: 4). A crisis, and mobilisation efforts by political entrepreneurs, both contribute to making large numbers of voters aware of and invested in reforms targeted at a particular industry (ibid.: 6-7). And thus as ‘voters pay attention to an issue, politicians will start paying attention to public opinion’ (ibid.: 7). These are the conditions of noisy politics and high political salience, which make it harder for private corporations to achieve their political ends.
What is important for our analysis is that Culpepper’s work shifts the focus away from what we consider to be a more banal question of whether structural or instrumental power was at work. Instead it focuses attention on the arguably more significant issue which has tended to preoccupy the parallel regulatory capture literature: namely that there is oftentimes a conflict between the public interest and private interests (Carpenter and Moss 2013); thus attention is better devoted to attempting to determine which prevailed and the mechanism through which this was achieved (Dal Bó, 2006).
We argue in what follows that the noisy politics of the post-financial period resulted in a weakening of the capacity of the largest UK banks; whereas as quiet politics returned and the salience of banking reform subsided, the power of the largest banks in their struggle to resist fast-paced implementation, accompanied by a shift in regulatory priorities on the part of political institutions, limited the progress of open banking in the second phase. It allowed for the establishment of open banking with the dominance of the largest banks “baked in” to the new digital infrastructure.
As noted above though, we also reach beyond a potentially overly reductionist reading of quiet politics in two important ways. Firstly, Culpepper’s primary contribution to our understanding of business power is, in his own words, that public salience is the main determinant of corporate influence: ‘organized managers typically prevail in political conflicts over corporate control because those issues are of little immediate interest to most voters’ (2011: 4); whilst ‘the higher the salience of an issue, the weaker the hand of business’ (ibid.: 190, see also Kinderman 2024:1382). What is significant – and different – in our case, however, was that low public salience was a necessary but insufficient explanatory factor in determining the success of established banks in the roll-out of open banking. The precise relationship between public salience and the changing political environment – involving Brexit and then Covid – is ultimately unclear. But the available temporal evidence indicates that public interest in banking reform waned as memory of the financial crisis faded. Whilst the shift in political priorities and the lack of oversight of the technocratic OBIE were most definitely products of a new, post-Brexit agenda.
Secondly, the way that quiet politics is traditionally understood, or at least the mechanisms through which corporate managers win, is via technocratic institutions, because ‘in such arenas’, the ‘high technical complexity’ of policy (Gava et al., 2022: 161) mean that ‘managers have a preeminent voice’ (Culpepper 2010: 9). Our second departure stems from our focus on openings (still) available to corporations once the pitched battles over the terms of the debate and the ensuing regulatory framework had been purportedly lost. Instead of focussing their energy on struggles within political institutions (i.e. political power), the low public salience, the changing political context, and the delegation to the technocratic OBIE, gave incumbent banks the opportunity to exploit their last available resource – their market power – to shape the open banking ecosystem as it was born into existence.
As we detail in the next section, the noisy politics post-2008 stemmed from the cultural scandals which had beset the banking sector (PCBS 2013); and the ongoing productivity and investment challenges in the UK that threatened the Conservative fiscal consolidation agenda: the British economy was stagnating, investment was falling, and the lack of competition in domestic retail banking was seen as a direct cause (Treasury, 2015b). In addition, the need for sustained increases in consumer lending – associated with an implicit debt-fuelled consumption-led growth model – was a second area where established domestic banks were seen to be failing. As a result, 2013-15 proved to be a turning point, with three large institutional changes taking place: expanding the remit of the Financial Policy Committee (FPC) to include annual reports on competition; handing new competition powers to the Financial Conduct Authority (FCA); and, most importantly, dissolving the Competition Commission and Office of Fair Trading, to be replaced by the new Competition and Markets Authority (CMA), which immediately set about tougher action to promote competition in the retail banking sector. These were direct attempts by the British state to appear responsive to the public interest and the noisy politics of the time.
In a concentrated system like the UK with a tendency for customers to use the same financial institution for most of their financial services throughout their lives, there was previously little incentive for the large banks to be aggressively competitive in attracting new individual consumers and businesses. This meant, as the FCA (2018) noted, that by 2017 ‘one thing is for certain … compared to many other sectors … retail banking as we know it has long been due a shake-up’. In 2017, still only 40% of UK adults had confidence in the financial services industry, while only 31% viewed financial firms as honest and transparent (FCA 2018: 15).
To further understand the how the high political salience of banking sector reform fed into the open banking project the following section traces the design of open banking policy. Section three then moves to the implementation stage, highlighting the return to quiet politics, the changing political context, and the increasingly successful efforts of the largest banks to resist the pro-competition drive.
Designing competition policy and the road to open banking
Several decisive moments focused the minds of UK political elites on the need for greater competition in retail banking markets. Most notably the financial crisis 2007-08 and subsequent scandals (e.g. PPI, Libor, Forex) significantly impacted the credibility of the largest UK banks, while the slowdown in lending to SMEs that led to the failed Project Merlin lending targets (2011-12) also increased the urgency for change (Macartney 2019). Then, in 2013 the final report of the Parliamentary Commission on Banking Standards recommended that the new CMA ‘immediately commence a market study of the retail and SME banking sector’ (PCBS 2013: 11). When the CMA and FCA published their report on SME lending in 2014, they noted that despite one new entrant (Metro Bank) and the expansion of others (Aldemore, Shawbrook and Handelsbanken), expansion had ‘tended to be very small scale’ and did not appear to pose a ‘more general competitive constraint on the larger banks’ (CMA & FCA 2014: 10).
By 2015 a new, more aggressive approach to retail bank competition was seemingly crystallising within the institutions of government. This approach was particularly apparent in the Treasury’s productivity plan entitled ‘Fixing the Foundations: creating a more prosperous nation’ (2015b), which set in motion a series of institutional and regulatory changes. The plan highlighted that despite the growth in employment in recent years, the UK lagged behind a number of other comparable countries in terms of productivity. The Treasury concluded that the financial services sector was a key factor in raising productivity, and so it would demand that the Prudential Regulation Authority and the FCA (2015a: 12) establish a new ‘Joint Bank Unit to promote competition’.
This new emphasis on promoting competition in retail banking had already been reflected in regulatory efforts lowering barriers to entry for new banks, promoting the 7-day switching service, and legislating to help businesses secure finance from alternative lenders (HM Treasury 2015a: 57). The new emphasis on competition was also echoed in the Chancellor’s letter to the FPC setting out its remit (Treasury, 2015c). Here the Chancellor noted that he had ‘made clear [his] aspirations for UK financial services’ – that, put simply, there would be ‘more competition’ (Treasury, 2015c: 2). Promoting competition was perceived to be the vital mechanism to addressing both consumer and business concerns. It was here that he emphasised that ‘Britain [would] be leading the FinTech revolution’ (Treasury, 2015c). He went on to explain that this included ‘minimising barriers to entry and ensuring a diversity of business models within the industry’ (Treasury, 2015c: 8).
The evolving approach of the British state was most apparent though in April 2014 with the creation of the Competition and Markets Authority (CMA) to replace the former watchdogs – the Competition Commission and the Office for Fair Trading. One of the first steps taken by the CMA was a formal investigation of competition in the banking sector as advised by the PCBS. Despite ten (more informal) reviews over the previous 15 years little had changed in the retail banking sector, with the CMA concluding that the largest banks still ‘did not have to work hard enough’ to compete for business and current accounts (Interview 20180530, 2018a). To understand what was so novel about the CMA investigation and conclusions, we analyse how the evolved approach to competition policy influenced three decisive moments on the road to open banking: (1) the initial review; (2) the decision to mandate standardising open APIs; and (3) implementation decisions on timeframe and costs.
The initial review
Based on a series of high-profile reports and investigations into banking competition, the UK approach emerged as a standard-setter in terms of the regulatory debate on open banking around the world (Nicholls 2019: 126; LendIt Fintech 2018: 6). As early as 2011, the UK was considering a regulatory move to assist the development of open banking (Zachariadis 2020: 141). That year, the Department for Business, Energy and Industrial Strategy launched the ‘midata’ initiative, which can be thought of as a forerunner to open banking as it attempted to allow better access to transaction data in a transferrable electronic format (GovUK 2011). In March 2013, UK Chancellor George Osborne declared the UK banking system ‘too concentrated’ and the PRA declared itself committed to ‘levelling the playing field’ (Boden 2020: 42). Also, in 2013, the Office of Fair Trading (OFT) conducted the review of the UK PCA market mentioned above, which was to prove very influential in framing discussions over the need to improve competition (Nicholls 2019: 127).
Previous work by the OFT had highlighted similar problems of competitiveness but had focused on addressing barriers to entry such as: simplifying the authorisation regime for new banks; changing capital requirements for new banks; and enabling 7-day account switching (OFT 2014: 2). Yet the OFT still concluded that ‘despite these and other positive developments, there [were still] competition concerns’ (OFT 2014: 2). In particular it highlighted that access to information on creditworthiness of borrowers and banks’ conduct in relation to security were preventing either alternative lenders entering the market or SME borrowers shifting to alternative providers (OFT 2014: 3). It therefore tentatively concluded that the formal criteria for initiating a (more invasive) formal market investigation might have been met (OFT 2014: 3), before passing the final stages of the 2013 review over to the new CMA which produced a final report in July 2014 (CMA & FCA 2014). The statutory criteria for a formal market investigation are that, ‘there are reasonable grounds for suspecting that any feature, or combination of features, of a market in the UK for goods or services prevents, restricts, or distorts competition in connection with the supply or acquisition of any goods or services in the UK or a part of the UK’ (OFT 2014: 2). Competition had effectively become a signifier for the public interest in this period of noisy politics.
What followed in November 2014 was a decision by the CMA to conduct this formal, in-depth market investigation into PCA and SME retail banking sectors (CMA & FCA 2014). This was a hugely significant step because it challenged the interests of the four larger banks (Barclays, Lloyds, HSBC and RBS). The CMA noted that ‘the four largest UK banks, expressed reservations about the appropriateness’ of a formal investigation on the grounds that the CMA had understated customer satisfaction levels and that the big banks were already implementing structural remedies to the competitiveness problems (CMA & FCA 2014: 4). Barclays (2014: (2) for example, claimed that ‘various developments, innovations and stimuli are changing the competitive landscape in relation to both PCAs and SME banking and these must be given time to mature’. But the CMA quickly dismissed these objections. The reason that this decision was so controversial was that if the CMA committee concluded that a feature of the retail market ‘prevents, restricts or distorts competition’ then – under the Enterprise Act 2002 – they had powers to take strong remedial or preventive action (CMA 2015b: 7). The banks were aware that this might even involve divesting and downsizing their operations; ‘breaking up the banks’ – a theme that had featured heavily in the UK ring-fencing process – was back on the agenda (Interview 20180530, 2018b). Bank power was at a historic low.
Notably, during this period, John Gibson of Fingleton Associates, who was previously a Senior Policy Advisor in the UK Prime Minister’s Office from 2010 to 2013, is understood to have ‘pitched’ the idea of open banking to the Treasury (Nicholls 2019: 128). Open banking, according to Gibson (cited in Nicholls 2019: 128), ‘would be like the App store but for banking’. A key conclusion of the ‘Fingleton Report’ commissioned by the Government was that ‘greater access to data has the potential to help improve competition in UK banking’ (ODI & Fingleton Associates 2014). By 2015, the UK Budget contained a commitment to introduce open banking and the Open Banking Working Group was established at the request of the Economic Secretary to the UK Treasury (Nicholls 2019: 129). Alongside innovation and integration of services, open banking was framed in industry reports as an issue of promoting competition. It was claimed that open banking ‘democratizes the playing field and ignites innovation’ (LendIt Fintech 2018: 3). The general view was that: ‘Traditional banks now will not only be competing against other banks, but a range of enterprises offering financial services’ (ibid.).
By May 2016 when the CMA issued its Provisional Decision on Remedies to the Retail Banking Market Investigation it explained that it had considered the view that ‘breaking up the big banks’ might improve competition’ (CMA 2016: 2, see also Guardian, 2015). Instead it concluded that remedies which supported ‘technological developments’ already underway would be more efficacious and, importantly, encourage ‘expansion by new market players, some of which may use fundamentally different business models to traditional banks’ (CMA 2016: 2 emphasis added). The foundation measures proposed by the CMA (2016: 6) therefore centred on open Application Programming Interfaces (APIs) banking standards, discussed in the next subsection.
Put simply, capitalising on technological innovation in the fintech sector, and driven by the commitment of the Conservative-led Government, the CMA’s initial review and proposals constituted an alternative and revised approach to dealing with the lack of competitiveness in UK banking compared to previous reviews. In the era of noisy politics this was intended as a direct challenge to the monopoly of the big four banks. As the CMA (2017) noted: ‘Open Banking will make a transformational change to banking for personal customers and small businesses’.
Standardising open APIs
The second key episode involved a strategic decision by the CMA in 2016. Open banking was a specific and timely response by the CMA to the publication of the EU’s broader approach. PSD2 made open access a requirement but left two options for how to achieve this goal: one was via screen-scraping; the other was via open APIs, outlined below. Incumbent banks were sceptical about the security risks associated with open APIs; the fintech industry – including digital banks – argued that open API’s made accessing data – which is even more valuable than managing accounts – more feasible (Interview 20180531, 2018).
Open APIs were therefore at the forefront of the transition to fintech business models, allowing financial systems to securely share access to data and process transactions across different financial institutions (LendIt Fintech 2018: 8). Open APIs did not originate in the banking sector, they were originally innovated by Google, and are central to the business models of firms such as Uber, Amazon, Facebook and Twitter. The idea behind open APIs is to allow all third-party providers access to a package of data at the level of an individual consumer (as opposed to aggregated data from a whole group of individuals). This might include Internet search and purchase histories, for example. The idea, tried and tested by these other service providers, is to be able to tailor advertising and products more specifically to the needs of the individual; as well as connecting different parts of the consumer experience. The API – which is essentially the digital infrastructure – allows this to happen (Interview, 20180630).
Initial assessments by the CMA focused on issues of bank authorisation, capital requirements, funding, and established branch networks (CMA 2015a: 38-45). Open APIs received only a passing mention (CMA 2015a: 15); though the CMA did commit to investigate the ‘potential impact of transparency of information and enhanced comparability of accounts’ around open banking (CMA 2015a: 21). A later call for evidence by HM Treasury (2015a) however, ultimately provided the answer to the longstanding problems in retail banking, for it was during this consultation process that the ‘government…repeatedly heard that an open API standard would result in customers feeling more empowered to engage with their banking or financial services’ (HM Treasury 2015a: 5). The result was that the government committed to ‘deliver an open API standard in UK banking, and [would] set out a detailed framework for the design of the open API standard by the end of 2015’ (HM Treasury 2015a: 7). In open APIs the Conservative-led government recognised that it (potentially) had the key to unlock the business model that underpinned the retail banking oligopoly. This view was swiftly conveyed to the CMA.
For the purposes of our argument though, one important detail should be emphasised. Although the decision to pursue open APIs was not particularly controversial, the CMA decision to standardise the API was noticeably interventionist and challenged the interests of the largest banks. There was an argument in circulation in 2015-17 that the most appropriate way for the CMA to proceed would have been to allow banks to develop their own API and to compete on the best product (Interview, 20180630). The CMA chose an alternative route. Early in 2016 it established the Open Banking Implementation Entity to achieve a standardised product. In other words, open API standards could have been either private sector-led or public sector-led, and the UK chose the latter route by mandating standards though an independent entity (Zachariadis 2020: 149). The main winners from this decision were fintech firms, since this would create an open playing field for them (Interview 20180531, 2018). The decision to pursue standardised APIs marks out the UK approach to open banking compared to other jurisdictions, especially in terms of providing specifications for open API design (Zachariadis 2020: 142).
The timeline and costs
The third key episode revealing the more forceful approach pursued by the CMA concerned the distribution of costs for implementing open banking. Put simply, the major benefits of open access would accrue to firms other than the big established banks, whilst the major costs would be borne by the largest banks. It was not simply the costs of the initial API build however, but the ongoing maintenance costs that the larger banks complained would fall disproportionately on their shoulders. Barclays (2016: 8), for example, noted that ‘it would seem disproportionate to ask providers who are covered by the open API standard remedy to build and provide ongoing support for an API that contains data relating to other providers’. Nonetheless the CMA opted to establish the Open Banking Implementation Entity – the successor to the Open Banking Institute – to manage the move to open banking, while imposing the costs on the nine largest banks and building societies. (Nicholls 2019: 131).
Not only were banks being compelled to move to open banking in a relatively short timeframe, they were asked to pay the costs of facilitating the process. As the FT (2023) would later conclude, the incumbent banks were ‘reluctantly forced by the CMA’. In sum, the rapid move to open banking and standardised open APIs clearly marks a shifting strategy of the state intended to respond to public resentment at the retail banking sector. Yet, as we will show in section three, the initially strong and more interventionist approach gave way to an arms-length strategy as open banking reached the implementation phase, meaning that pro-competitive shifts in UK retail banking were more ambiguous than anticipated. During the initial phase, the crisis in retail banking had helped crystallise a more proactive and decisive approach by the Treasury and the CMA in response to the high saliency of banking reform. Bank power and the influence of the ‘limited oligopoly’ had waned.
From design to implementation
As open banking was launched in January 2018 expectations were therefore high. Many observers believed that expanding access to customer data – and the accompanying ‘quiet digital revolution’ (FT, 2019a) – had ‘the potential to upend the stagnant banking industry’ (Wired 2017); ‘would-be innovators promised a flood of new products that would herald the biggest shake-up in retail banking for decades’ (FT, 2019b). 12 months later however, the mood was far more sombre: the ‘predicted deluge’ had ‘been more of a trickle’ (ibid.).
The COVID-19 pandemic provided a much-needed impetus for adoption and the growth of open banking gathered steam. Just 6 months after reaching its first one million user milestone the OBIE reported a further doubling of the user base to 2 million (AltFi 2020) and by April 2023 that number had risen to seven million with approximately 10-11% of online banking consumers using at least one open banking service (FT Adviser 2023). Indeed the CMA and FCA were at pains to emphasise the positive impact stemming from their open banking initiatives. As John Glen, then economic secretary to the Treasury, proclaimed: ‘We pioneered Open Banking, which has now taken the world by storm’ (HM Treasury 2021a: 4). Indeed the CMA review (2022: (2) stated that UK open banking was ‘recognised internationally as a world-leading approach’. Compared to EU countries, the UK certainly appeared to be significantly ahead in terms of open banking adoption rates and API coverage (AltFi 2021).
Nevertheless the central claim of our analysis is this: increased usage of open banking – the metric usually used to measure its success – hides the fact that a limited oligopoly of the biggest banks still dominates UK retail banking and that alarming symptoms of a lack of effective competition in UK retail banking remain. The purpose of this third part of our paper is to explain how the return to quiet politics and the changing political context facilitated the reassertion of the market power of the largest banks which led to this adverse outcome.
Quiet politics: from CMA to OBEI
The core argument of quiet politics – that the less the public cares about an issue, the more private firms exercise disproportionate influence over the rules governing that issue – also involves the shift away from formal political institutions to the informal, technocratic arena (Culpepper 2010: 48). Lower levels of public interest in matters of banking reform – as evidenced by Figure 2 were not the only cause of this shift in the open banking implementation phase.
2
Indeed as Culpepper notes, this is often because once framework legislation is established more detailed ‘discussions over institutional [configurations] often take place in nonlegislative and nonregulatory arenas’ (Culpepper 2010: 180). Yet whilst the traditional reading suggests that this is the arena in which private actors exert influence, our third subsection below challenges this claim (ibid.:55). Public interest in ‘banking reform’.
In 2016-17 the implementation of the appropriate open banking standards was delegated to the OBIE. This shift denoted open banking policy being relocated away from the CMA (a broader regulatory body) to a technocratic institution with a much narrower and well-defined focus. The CMA ‘recognised that it could not specify the technical design of the Open Banking standards in its Order, and so it only provided a summary of the core deliverables’ (ODI and Fingleton Associates, 2019: 14). While regulators including the CMA and the Treasury would provide governance oversight of the OBIE, it ‘would work [independently, coordinating] with stakeholders from across the sector to deliver Open Banking’ (ODI and Fingleton Associates, 2019: 14). This decision to create the OBIE, and its specific mandate, then, are emblematic of a form of regulation in which policy issues are relocated to ‘quiet’ technocratic arenas of governance.
What was significant for our purposes however, was that when an independent review of the OBIE was conducted in 2021 it was concluded that ‘the governance processes of OBIE clearly fell down the cracks between the CMA and the CMA9 [the nine largest banks and building societies]’ (CMA 2022: 2). Indeed the CMA (ibid.: 22) itself concluded ‘that from 2016 onwards the CMA was focused on preparing for Brexit and for the substantial new responsibilities the CMA was expecting to take on’. Specifically it concluded that the ‘CMA did not put in place enough strategic oversight and stakeholder management’ (ibid.: 3) and that because open banking was designed as a ‘principles-based remedy reliant on developing technology, there were inherent uncertainties and scope for differing interpretations… [which] were not sufficiently considered or revisited by the CMA’ (ibid.). Together these factors meant that whilst implementation was due to be complete by January 2018, ‘the project [was] still ongoing after more than 5 years’ (ibid.: 13) and was not fully completed until January 2023 (OBIE 2023). Delegation of authority to the OBIE was a major cause of the delays in implementing the open banking reforms (Interview 20240815, 2024). The CMA had been more focused on identifying problems in retail banking, ‘rather than on overseeing the implementation of remedies’ (CMA 2022: 21). In short, the delegation of responsibility to the OBIE was a direct cause of ‘differing and staggered implementation by individual members of the CMA9’ (CMA 2022: 23).
What matters for our argument is that quiet politics – measured through issue salience and the delegation to technocratic bodies – played a necessary but insufficient role in explaining the revival of bank power and the failures of open banking itself. Our next subsection shows how the changing political context clearly also featured in the lack of oversight of the OBIE by the CMA and the changing approach of the Treasury towards the City, in a way that cannot be reduced to low public salience. Moreover, as our final subsection explains, contrary to the conventional reading, bank influence manifested as market power exerted by the largest banks, capitalising on the failures of the OBIE, rather than via victories within this technocratic body.
Changing political context
From 2016 onwards, perhaps the defining aspect of British politics was the financial, political and policy uncertainty created by the Brexit vote (Eichengreen 2019). Substantial turmoil in financial markets followed the referendum result, and the then Prime Minister David Cameron resigned generating further political instability (Schiereck et al., 2016: 291). At one level it should be noted that the decision to leave the European Union did not have an immediate and specific impact on the details of implementing the open banking remedy (Interview 20240814, 2024). The standardised open API – which characterised the UK’s approach – was its preferred route to implementing the EU’s PSD2, but by 2018 the two initiatives were relatively distinct (ibid.). This meant that open banking in the UK had developed a life of its own by the time of the Brexit vote.
That being said, Brexit had several important implications for government (read HM Treasury) politics that impacted the implementation phase and created conditions apposite to the renewed power of the largest banks. Most particularly, despite intra-industry differences within the financial sector on the question of Brexit, and moderate differences between those preferences and the bargaining position of the UK government, by 2018 these divergent interests had softened (Scott and Quaglia, 2018: 563). In part this was due to a growing recognition of the importance of the financial services industry to the UK in a post-Brexit world and fears that big firms were ready to be welcomed by French and German authorities (ibid.: 564).
As a result the government and the Treasury adopted a more conciliatory approach towards the City, so that as the UK entered 2020-22 there was clear evidence of a political shift underway. In the words of Treasury, 2021b: 6), they were ushering in ‘a new chapter for financial services’. The main objective of which was ‘to ensure… the importance of the financial services sector as an engine of growth for the wider economy and the need to support the future strength and viability of the UK as a global financial centre’ (Treasury, 2021b: 5). The epitome of this new chapter was the introduction of a new pro-growth mandate for the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA).
These initiatives had followed a consultation with industry which ran from October 2020 to February 2021. Broadly, consumer groups were concerned that the introduction of competitiveness objectives might distract regulators from their existing priorities, whereas financial services firms – both incumbent banks and fintechs – argued it was essential and timely (Treasury, 2021b: 25). As one industry representative emphasised, ‘If there is a competitiveness or growth requirement, you get more airtime or more oxygen for those considerations, which are going to be hugely important going forward’ (Treasury Committee 2021: 23). The accompanying Mansion House document clarified that the government ‘recognises that the financial services sector…is an engine of growth for the wider economy’ (Treasury, 2021b: 31). As a result, the government opted to reject the sceptics arguments and align with industry in the introduction of new secondary statutory (pro-competition and pro-growth) objectives to the mandates of the FCA and PRA. As Professor David Aikman later explained to the Treasury Committee (2022: (2) ‘it [felt] like the pendulum [was] beginning to swing’ in the ‘cycle of financial regulation’.
Thus the waning public interest and the delegation to the OBIE played significant roles – as anticipated by the quiet politics template. But the changing political priorities which led to lack of oversight of the same OBIE and, with time, to a less oppositional approach towards the City, stemmed primarily from the politics of Brexit. As our third and final subsection now argues, it was only under these combined – fortuitous – conditions that the largest UK banks were able to exert their market power and to crystallise their positions within the emerging open banking ecosystem.
Bank strategies change
This third and final subsection therefore seeks to show how the biggest UK banks sought to reassert their influence in order to maintain their market share. Herein lies the final piece of the puzzle as to how open banking usage has been almost miraculous in its uptake (Interview 20240815, 2024), whilst failing to make a significant change to the limited oligopoly of the largest banks and the resulting effects for competition and service in UK retail banking. Put simply, this section shows how the banks themselves adapted in the return to quiet politics and the fluctuating political environment, shifting from what former Barclays CEO Anthony Jenkins called ‘museums of technology’ – with antiquated, backwards hardware and software – to gatekeepers and ‘masters of the [new] digital universe’ (Economist Impact 2023:7).
The responses of the largest banks came in two waves, both of which served to address the threat from smaller, niche fintech firms and digital-only challenger banks. Immediately following the launch of the open banking implementation phase the first step for the major UK banks was to launch their own aggregator products. In the words of the Open Banking institute, ‘account aggregators allow bank customers to view their accounts from different banks through a single interface’ (Open Banking 2024). The risk was that ‘many of their customers may seek out the convenience of digital aggregators, taking their accounts, and the profit pools they represent, with them’ (Bain, 2018). It was estimated that between 10 and 20% of current UK banking business was at risk of being disintermediated through these changes, with 63% of customers surveyed indicating that they would be willing to share their financial data with a third-party fintech or aggregator (ibid.). As a result, the largest banks rapidly launched their own, in-house products, led by HSBC (CNBC 2017) and its Connected Money app in May 2018 (Finextra 2018), and followed by Barclays (September 2018), Lloyds (February 2019) and Natwest (February 2019) (Fintech Futures 2019).
The second skein to the big banks’ responses was more directly correlated with the technocratic oversight – or lack thereof – of the OBIE and the slowed implementation phase. Despite some minor differences in strategy the overarching trend was a shift away from a more defensive approach to the introduction of open banking – a battle which had already been lost – and away from developing in-house products to compete with more technologically agile challenger firms. Instead the Big Four ‘resorted to forming an ecosystem of fintechs with an array of carefully curated alliances that help them unlock ecosystem orchestration at scale’ (Whitesight 2022). Fintechs were able to provide the technology, ‘banks the funding and customers, with each augmenting the potential of the other’ (Bain, 2023). Or as UK Finance (2024), the trade association highlighted, banks had begun to realise that ‘digital transformation [wasn’t] just advantageous, it [was] essential’. The digital acceleration underway changed everything ‘from the user interface to the type of products a bank could offer’; these changes ‘were hard to accomplish quickly using only a bank’s internal resources, so banks had to look outside for help’ (Bain, 2023). This ‘explains why banks are acquiring fintechs’ (UK Finance 2024).
Indeed the facts mirror the discourse. In 2023, for example, the UK financial services sector witnessed a total of 80 M&A transactions amounting to $1.2bn; the total deal value also rose from £4.3billion in 2022 to £6.7bn in 2023 (Banker, 2024; UK Finance, 2024), with a large percentage coming from acquisitions and partnerships between incumbent banks and smaller third-party providers. As a result the market survey company Gartner reported that there were an average of 9.4 fintech partners per UK bank by 2024 (cited in TSYS 2024) and a similar Parthenon, 2023 survey found that 95% of the largest banks used partnerships to enhance their digital products and reach. Thus as one interviewee explained to the Treasury Select Committee, ‘You do still see the dominant position for the big banks. They are very profitable and very entrenched in the system’ (Treasury Committee December, 2021: 30).
Arguably the most important example of the changing approach of the largest banks came in the form of the so-called Fintech Pledge. The initiative was developed by the Fintech Delivery Panel (FDP) – which comprises representatives from fintech companies and the UK’s five largest banks – in September 2020 (Finance, 2020). This attempt to streamline and formalise the process of integrating fintech and bank partnerships through a quasi-political framework, was pivotal, because approximately 40% of bank-fintech partnerships had hitherto failed to operationalise due to a ‘lack of structure and guidance around the partnerships and how they are implemented’ (Parthenon, 2023). Thus the signatories ‘committed to ensuring that relationships between technology firms and banks are conducted with renewed vigour, by building upon industry leading transparency and communication’ (Barclays 2020).
This was not therefore, outright opposition to open banking by the largest banks. Neither was it an attempt to shape policy within technocratic institutions. Instead it was an attempt to capitalise on the technocratic ineptitude of the OBIE and to slow the process sufficiently to allow their own adaptation to take place (Macartney et al., 2021); this strategy was born from a fear of losing out to smaller challengers and involved the large banks exerting their market power. As the Economist (2017) noted, ‘perhaps predictably, resistance is manifested as a concern about data protection…Such concerns are legitimate but also…offer a convenient excuse for banks to block competition’. This was also the conclusion of the CMA (2021: 3) as it responded to the House of Lords, noting that ‘the commercial objectives of the largest banks’ had risked slowing the ‘development of the [open banking] regime’ when they were ‘in conflict with the pro-competitive purpose of the remedy’.
Thus ineptitude on the part of the OBIE, ineffective oversight by the CMA, and slow implementation by the largest banks allowed the limited oligopoly to re-gain control over the roll-out of open banking which had threatened to undermine their position and hold on UK retail banking markets. When it was announced in January 2023 that the largest UK banks had completed implementation (OBIE 2023), their dominant position was therefore “baked-in” to the new architecture of open banking.
Conclusion
We began by noting that for several decades the British retail banking sector was acknowledged as one of the most concentrated in the world. In this article, we have traced how a period of ‘noisy politics’ following the global financial crisis appeared to mark a shift in statecraft to a position in which successive UK governments were more serious about retail banking sector reform. The rise of the challenger bank idea and notions of inducing competition through new market entrants were key to reform agendas that seemingly worked to disturb the informal contract between the state and the largest UK banks.
The emergence of open banking threatened to rewrite the rules. Born out of an apparent frustration on the part of the British state in an era of noisy politics, open banking promised a shake-up of retail banking by enabling the sharing of customer data and the accompanying entrance of newer digital-first banks and fintech platforms. New political institutions – in particular the CMA – reflected this shift in the statecraft. The more decisive approach meant that during the design phase of open banking (2013-2018), the power and influence of incumbent banks waned in the face of a more aggressive CMA and the noisy politics of the post-crisis period. However, by the implementation phase (2018-2023), a period of quiet politics had re-emerged in retail banking, coupled with a changing political context in which the biggest UK banks sought to reassert their influence in order to maintain their market share. A second revolution in UK retail banking was not forthcoming and retail banks did not need to exert outright opposition to open banking because they were able to slow the process sufficiently to allow their own adaptation to take place.
What are the implications then for future attempts at reforming banking in the UK? On our reading, one key issue is the relationship between public discontent in finance, on the one hand, and statecraft formed in the pursuit of banking sector reform, on the other. Our account of the British state’s experiment with open banking is one that seeks to underscore the move from an era of quiet politics to an era of noise and discontent surrounding banking back to a time of quiet politics in banking, in which policy was focused on other issues, not least Brexit and COVID-19. What then maintains banking reform as an issue of political salience? Will it take another crisis? Presumably financial crisis dynamics are one possible route to re-politicising banking and finance more generally once again. Yet, as previous cycles of financial mania and crash illustrate, such crises are a high price to pay for another chance to chip away at the status quo of the informal contract between the state and the largest UK banks.
Footnotes
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This study is supported by British Academy; Fintech Firms and the Disruption of British Banking.
