That is why, when the Competition and Markets Authority ordered the implementation of so-called Open Banking almost three years ago, everyone excitedly welcomed the prospect of upstart new banks and other fintech companies using technology to challenge the Big Five. Here Kevin McCallum, CCO at FreeAgent , talks to Finance Monthly about the different ways big banks are making the most of Open Banking.

More than a year after roll-out began, however, it looks more like the little guy is not yet making the inroads expected. In the new Open Banking race, it is the incumbents which are still leading the field.

When the CMA found insufficient competition in banking, it was no surprise - almost 90% of business accounts are concentrated with just four or five institutions, while 60% of personal customers had stayed with their bank for more than a decade.

The central solution was to be Open Banking, starting with requiring banks to allow rivals and third-party services access to customers’ account data - subject, of course, to the necessary permissions. This, the theory went, would spur competition through innovation - we would see banks reduced to interchangeable commodity services, mere infrastructure providers, with nimble, agile third-party services innovating on top, spurring the banks in to action.

In the same timeframe, we have certainly seen the emergence of digital-only challenger banks like Starling, Monzo, Tide and Revolut. While all of them offer 2019 features like savings round-ups, spending analysis, budgeting and merchant recognition, most of the innovation has happened within the walled garden of the traditional account.

Starling and Revolut are already registered for and engaged with Open Banking. Starling is now supported by MoneyDashboard and Raisin UK, while Revolut’s API is supporting connection to many third-party apps. But it’s fair to say the upstarts were expected to dive in to Open Banking faster and deeper than this, some consider them to be behind the curve.

What we have seen, instead, is the big banks leaning heavily in to Open Banking.

HSBC was amongst the first to offer account aggregation, the practice through which consumers can access account data from rival banks, inside a single provider’s own app, initially through a separate Connected Money app.  Barclays, Lloyds and RBS/NatWest have since gone as far as offering the facility inside their core apps.

Of course, the big banks are incentivised to pull in rivals’ account data. Being the first port of call for all finance matters is attractive, whilst account data from other institutions can be used to aid product marketing and lending decisions.

In truth, we have begun to see the first signs of innovation amongst third-party services which plug in to those accounts. CastLight is helping lenders more quickly understand customers’ affordability, Moneybox is helping users round up spending in to savings, Fractal Labs uses knowledge of account activity to help businesses better manage their cash. We have even seen a large bank powering such new-style services in the shape of TSB’s loan comparison service, powered by Funding Options, which surfaces products from across providers.

But, even so, these use cases are not a step-change from the kind we already had before, albeit using less sophisticated methods of data collection. At FreeAgent, where we have offered bank account integration through more rudimentary means for several years now, we sense strong customer demand for efficient, API-driven bank account access. Most onlookers, and digital-savvy customers of the new-wave banks, expected more than this by now.

Why has the pace of Open Banking innovation to date been relatively underwhelming?

First, only the UK’s nine largest banks were mandated by the CMA to make account data available through APIs by the January 2018 deadline.

Ironically, the upstarts have been relatively more free to sit back. Indeed, unlike the legacy holders, they have no burning platform they need to quickly save; for them, the future is growth.

In fact, though, as smaller, less-well-resourced entities, they also have to plan out their investment more carefully than wealthier institutions, rather than dive headlong in to costly initiatives. Monzo is on-record as saying it will embrace the possibilities slowly, exploring whether to build features like account aggregation “in 2019”. When you’re a bank - even a cutting-edge, agile one - “move fast and break things” is a hard mantra to follow.

Furthermore, actual technical implementation of Open Banking is, shall we say, non-trivial. Adoption is complex, and far more complex for account providers than for third-party accessing services. In many cases, writing native code to enable integrations, whilst it may be considered messy, has been more straightforward than adopting Open Banking APIs.

Finally, the big banks, the “CMA 9”, have pushed compliance with Open Banking right down to the wire. Whilst they have been first to the punch, had they managed to launch sooner it may have encouraged the upstarts to compete more quickly.

It won’t stay like this forever. The Open Banking timeline has been an ironic inversion of the class of companies we typically expect to be canaries in the mineshaft of technical trailblazing. But banking innovation is about to become more evenly distributed as the balance between big guns and small players levels out.

From September, all banks, even the smaller ones, must be compliant with Open Banking standards. That is going to be an interesting moment for the new wave - can you really be considered the plucky upstart when you are subject to the same compliance framework as the lumbering giants?

Further regulatory compulsions on the big banks - and one in particular - could further spread Open Banking innovation downstream.

As part of conditions attached to its £45 billion government bail-out during the banking crisis, RBS has been compelled to funnel £700 million in previous state aid in to measures supporting business banking competition.

This so-called Alternative Remedies Package includes several pots of innovation funds, and the scheme’s independent administrator has just made the first innovation awards - £120 million to Metro Bank, £100 million to Starling, £60 million to ClearBank. Metro is promising “radically different” business banking, including “in-store debit card printing, lightning-fast lending decisions, fully digital on-boarding, integrated tax”; Starling says it will build “full suite of 52 digital banking products to meet the needs of all sole traders, micro businesses and small SME businesses”.

Even more awards are due to be made through 2019, likely spurring new use cases for Open Banking, and more besides, that many had not yet dreamed of. This level of funding is going to be an enormous catalyst for the kinds of companies that are really well placed to deliver.

The pace of technology adoption doesn’t always happen as quickly as it sometimes can feel.

Sometimes a great idea can take a long time to bubble up and gain widespread adoption. Shortly after the invention of the horseless carriage, Michigan Savings Bank is said to have forecast: “The horse is here to stay but the automobile is only a novelty - a fad.”

Technology becomes successful when innovation becomes normalised, when enough adoption has been seen that what, once, was considered new fades away and becomes part of the furniture.

Although we have spent the last couple of years talking about the Open Banking initiative, and although its roll-out has been slower than expected, this should not distract us from the likelihood that, in a short while, the innovation and adoption cycle around it will have accelerated to the extent we see many, many new use cases all around us spurring more services and more competition.

The ultimate test of Open Banking, then, will not be who is first to market - it will be when we no longer talk about it at all.