Nesta, the innovation foundation, has announced the twenty organisations selected to participate in the Open Up Challenge. The total prize pot is worth £5m and shall be shared amongst those participants offering the best solutions to SMEs seeking access to financial services and products, by harnessing the power of open banking APIs.

Participants are given exclusive access to the Open Up Data Sandbox containing anonymised transaction data relating to SME’s bank accounts. This allows the participants to develop their platforms in anticipation of the government and CMA-backed scheme to standardise open banking APIs through which intermediaries will be able to access live SME transaction data in order to provide tailored services, such as credit scoring, financial intelligence and recommended lending products.

The Challenge is divided into two stages, the first of which culminates in the selection of up to 10 of the 20 participating teams, who will share in a £1m prize pot, to be chosen in December 2017. The second stage continues through 2018, with prizes awarded in April and in September, with a further £2.5m available.

How does this timeline fit in with the open banking rules published by the CMA this year, requiring major banks in Great Britain and Northern Ireland to collect and make available a series of open and closed datasets?

CMA’s retail banking market investigation

In February 2017, the CMA instructed major retail banks in the Great Britain and Northern Ireland to make available reference information relating to certain standardised business and consumer products, and customer transaction data.

This followed a market investigation, which was carried out, between 2014 and 2016, following which the CMA published its report in November 2016. The terms of reference for the investigation included the consumer market for personal current accounts (including overdrafts) and the SME market for business current accounts, overdrafts, deposit accounts and lending products. The market investigation considered whether any feature, or combination of features, of the relevant markets prevents, restricts or distorts competition and, if so, what action should be taken.

The CMA’s report identified three types of lending products that suffer adverse effects on competition (AECs), as follows: (i) business current accounts; (ii) SME lending; and (iii) personal current accounts.

The Open Up Challenge represents part of the CMA’s response to the first and second of these AECs, that response being to facilitate the Challenge in order to stimulate directly innovations which would counter the lack of competition in business current accounts and SME lending. Such innovations are likely to include services which use the open banking APIs (see points 1 and 3 below) to allow for easier comparison between banking services through data aggregation and analysis – an activity which will be regulated and facilitated under the new PSD2 payment service category of “account information service provider” or “AISP”.

CMA open banking deadlines

The scope of the CMA rules are broader than SME lending, as they also cover consumer banking, but many of the rules are relevant to the Challenge since they are designed to help innovators such as the Challenge participants to reduce or eliminate AECs in relation to key banking services. The main rules (affecting both business and consumer banking services) are set out below, and require banks to

1.release specified reference and product information, without charge or restriction (and which will be accessible via open banking APIs), no later than 31 March 2017, including:

(a) reference information, including:

(i)            branch locations and opening times;

(ii)           ATM locations;

(b) product information relating to personal current accounts and business current accounts and SME lending products, including:

(i)            product prices (including credit interest);

(ii)           fees and charges, including interest rates;

(iii)          features and benefits;

(iv)          the monthly maximum charge;

(v)           terms and conditions;

(vi)          customer eligibility criteria.

2.  specify the maximum monthly charge that could accrue on a personal current account from 2 August 2017.

3. publish rates for SME lending products (the APR for unsecured loans up to £25,000 and the EAR unsecured standard tariff business overdrafts up to £25,000) by 2 August 2017.

4. make transaction data from business current accounts and personal current accounts continuously available from the date PSD2comes into force, being 13 January 2018.

5. collect feedback from their customers as to whether customers would recommend their banking products to others, no later than 15 January 2018.  Banks must release this data, as “service quality indicators”, from 15 August 2018.

6. automatically, and free of charge, provide transaction data relating to business current accounts and personal current accounts which are closed by the customer (covering the last 5 years’ of transactions) from 2 February 2018.

7. standardise business current account opening in terms of the information required from applicants (such as identification requirements) from 2 February 2018.

8. enrol personal current account holders into an alerts programme under which consumers are notified that they have exceeded or will exceed a pre-agreed credit limit, from 2 March 2018.

9.  offer a tool on the bank’s website enabling SMEs to obtain indicative price quotations and their eligibility for unsecured business loans and/or unsecured standard tariff business overdrafts, each up to £25,000, from 2 February 2018.  The same tool should be accessible to a minimum number of third party intermediary service providers by 2 May 2018.

Please note that these obligations apply to certain types of banks and credit products with a number of applicable exceptions.

Businesses seeking to exploit these rules should move quickly to ensure they are best placed to make the most of the opportunities they present. Banks, on the other hand, should already be working behind the scenes to ensure compliance with the deadlines set out above – some of which have already passed, and others will require significant preparation.

Equally, those seeking to take advantage of the open banking APIs to provide “account information services” from 13 January 2018need to be registered to do so with the FCA – the application process for registration opens on 13 October 2017.

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