May 17, 2023

A Third-Party Provider’s time to shine: Plaid’s take on the JROC report

Martijn Bos

As one of the most advanced markets in the world, the UK is no stranger when it comes to open banking. Based on the Joint Regulatory Oversight Committee’s (JROC) latest report, Recommendations for the Next Phase of Open Banking in the UK, it shows no signs of slowing down either. Below, we’ll walk you through what we think you need to know, including six of our most important takeaways.

1. Third-Party Providers (TPPs) are a critical piece of the puzzle

In order to access bank data and initiate payments, a Financial Conduct Authority (FCA) license is required for services like account information and payment initiation, which most fintechs don’t possess. Enter TPPs–licensed platform companies that build and facilitate the connections between Account Servicing Payment Service Providers (ASPSPs) and third parties–all at the end user’s request.

So what’s new for players like Plaid in the JROC report? JROC seeks to enhance the ways TPPs interact with account providers by improving data sharing in order to prevent criminal activity, and by developing commercial and liability framework in favor of increased and improved information flows from the account providers to TPPs. This helps provide better gateways to the ecosystem we serve–fintechs that serve as PFMs, investment platforms, lenders, and more. What's more is that the report specifically highlights a broadening of non-sweeping Variable Recurring Payments (VRP). This means that VRP via TPP initiated account-to-account payments could soon take flight beyond the same account holder sweeping functionality. 

2. New API standards unlock a broader and deeper data ecosystem

The new API standard that would affect all ASPSPs (beyond the current CMA9) would be the broadening. Now, Plaid will be able to connect to more banks with the same reliability and uptime as we currently do with the CMA9 banks and in a way that secures both consistent experiences for users and technical interoperability. 

We consider the envisioned commercial API endpoints to be the deepening of API availability. This will allow us to get more data points from ASPSPs to improve customer outcomes. Further to that, we believe that in order for open banking to be sustainable long term, all parties will need to feel included commercially. 

JROC envisions that this can be achieved by further investing in the API first open banking ecosystem. We see this as an opportunity to help connect our customers to millions of new consumers, allowing them to get the full benefits of open banking regardless of where they bank.

3. There will continue to be oversight by a central body

One of the key reasons that open banking is so successful in the UK is because there is a single entity overseeing the implementation and the setting of both regulatory and technical standards. The new JROC report discusses the future of that entity, currently the “open banking Implementation entity”. Firstly, and most importantly: there will be a successor. This body will be charged with overseeing both CMA order activities (open banking as it currently is) and non-order activities (the new functionalities proposed in the report) which OBIE will continue to do as well whilst the new entity shapes up. 

The new entity will also be in charge of developing the new API standards for all ASPSPs and ensuring interoperability in the market.  This is important because with a two year run up to a formal open finance framework, this next iteration of open banking needs to hit the ground running in order to help inform open finance regulation.

4. A clearer regulatory framework is missing

While the JROC report provides a solid foundation for change, there are a few areas where we will continue to monitor developments closely and contribute where appropriate, on behalf of the ecosystem and the customers who rely on Plaid to provide services. 

Though the report emphasises collaboration and harmonisation, it could benefit from a clearer and more detailed regulatory framework for TPPs especially when it comes to tackling ASPSP non-compliance. By providing more concrete guidance, TPPs can better navigate the complex regulatory environment and ensure they are delivering optimal value to their customers. 

5. Additional support is needed for emerging technologies

While the JROC report encourages innovation, it could further support the adoption of emerging technologies by addressing the unique challenges they face through principle and outcome based regulatory interventions. By building in these regulatory safeguards, the financial ecosystem will be better positioned to harness the full potential of these groundbreaking technologies, without having to wait for the next iteration of legislation. This keeps the market innovative and competitive without compromising on important pillars like privacy and data security. 

6. Our rallying cry to the financial services industry

The JROC report provides a compelling roadmap for the future of the financial industry, and it's up to all stakeholders, including TPPs, to seize this opportunity by building products that leverage industry best practice - and the new avenues available to us. It's time to embrace these changes so that together, we can drive innovation, security, and inclusivity in the financial landscape while  we await the arrival of open finance.

This is our moment to redefine the financial ecosystem and ensure it serves everyone, from the traditionally underserved to the most sophisticated consumers.

What are your key takeaways? We'd like to hear from you.