Open Banking Limited (OBL) has been officially designated to convene and coordinate the pivotal next stage of the UK’s Open Banking "Future Entity" activity, a move that signals a significant step forward in the maturation of the nation’s financial technology infrastructure. This development was unveiled by UK Chancellor of the Exchequer Rachel Reeves during her landmark Mansion House speech, which detailed a suite of reforms aimed at revitalizing the City of London and modernizing the UK’s payment landscape. The transition marks the beginning of a formal process to move Open Banking from its current temporary governance structure into a permanent, long-term regulatory framework designed to support the next generation of digital financial services.
The announcement was further detailed in HM Treasury’s "Modernising Payments Services Regulation" consultation, released as part of the broader Mansion House package. This consultation outlines the government’s vision for the Future Entity, which is defined as a not-for-profit body tasked with setting common Open Banking standards. This new organization is intended to take over the functions currently managed by OBL, providing a sustainable and legally grounded foundation for the ecosystem. The decision to appoint OBL as the coordinator for this transition follows a period of rigorous assessment and industry engagement, aimed at ensuring the UK remains a global leader in financial innovation.
The Evolution Toward a Permanent Future Entity
The path toward the Future Entity has been a complex journey involving multiple regulatory bodies and industry stakeholders. Earlier this year, the Financial Conduct Authority (FCA) commissioned KPMG to perform an independent assessment of the proposals for a future Open Banking standards-setting body. The results of this assessment were critical in determining the most effective path forward. By selecting OBL to lead the "convene and coordinate" phase, the government has recognized the organization’s existing expertise and its role in fostering the growth of the ecosystem since its inception under the Competition and Markets Authority (CMA) mandate.
The HM Treasury consultation noted that the industry has already begun mobilizing around this transition. There is currently a "positive momentum" toward establishing the standards-setting body even before the full legislative framework is finalized. This proactive approach is intended to prevent any loss of momentum in the sector, which has seen rapid adoption of Open Banking technology by both consumers and small businesses. The Future Entity will be responsible for maintaining technical standards, ensuring interoperability between banks and third-party providers, and facilitating the expansion of Open Banking into new sectors under the "Smart Data" umbrella.
Aligning with the National Payments Vision
The move to establish the Future Entity is a core component of the government’s National Payments Vision (NPV), which was published earlier in 2024. The NPV serves as a strategic roadmap for the UK’s payment systems, prioritizing competition, innovation, and security. Within this vision, Open Banking is identified as a critical pillar, particularly in its capacity to support the development of account-to-account (A2A) payments, frequently referred to as "Pay by Bank."
The government’s ambition, as stated in the NPV, is to create an environment where A2A payments can serve as a viable and competitive alternative to traditional card schemes. This shift is expected to reduce transaction costs for merchants and provide consumers with more choice and faster payment options. To achieve this, the regulatory framework must evolve to provide clarity on commercial models, such as Variable Recurring Payments (VRPs) for non-sweeping use cases, which would allow for more flexible payment arrangements like utility bills or subscriptions.
In her Mansion House address, Chancellor Rachel Reeves reinforced this commitment by announcing that the government intends to lay a statutory instrument under the Data (Use and Access) Act 2025 by the end of 2026. This legislative move will provide the necessary legal backing to deliver the long-term regulatory framework, ensuring that the Future Entity has the authority required to oversee the ecosystem effectively.
Growth and Impact of the Open Banking Ecosystem
Since the implementation of the Open Banking mandate in 2018, the UK has witnessed an explosion in the use of third-party financial services. Recent data from OBL indicates that the number of active users has surpassed the 10 million mark, reflecting a significant penetration into the UK’s retail banking and SME sectors. This growth has been driven by a variety of use cases, ranging from personal finance management apps and automated savings tools to streamlined lending processes and efficient tax payment systems for small businesses.
The transition to a permanent regulatory framework is seen as essential to maintaining this growth. Henk Van Hulle, the Chief Executive Officer of OBL, emphasized that this milestone is critical for the evolution of the ecosystem. According to Van Hulle, the industry is currently working to build a framework that is "fit for the future." He noted that as adoption continues to grow, the regulatory environment must provide greater clarity to support sustainable commercial models. This is particularly relevant as the industry moves away from a purely compliance-driven model toward one that encourages commercial innovation and value-added services.
Van Hulle also highlighted that a proportionate, future-focused framework would not only unlock the next generation of Open Banking services but also strengthen the UK’s leadership in digital finance. Furthermore, it provides a strong foundation for the wider ambitions of "Smart Data," which seeks to apply Open Banking principles to other sectors such as energy, telecommunications, and insurance, allowing consumers to share their data securely across various industries to find better deals and services.
Chronology of the UK Open Banking Transition
The journey to this point has been marked by several key regulatory and legislative milestones:
- 2017–2018: The Competition and Markets Authority (CMA) issues the Retail Banking Market Investigation Order, leading to the creation of Open Banking Limited and the implementation of PSD2 standards.
- 2021–2022: The Joint Regulatory Oversight Committee (JROC) is formed, bringing together the FCA, the Payment Systems Regulator (PSR), HM Treasury, and the CMA to oversee the next phase of Open Banking.
- Early 2024: The National Payments Vision is published, outlining the strategic importance of A2A payments and the need for a permanent governance body.
- Mid-2024: KPMG completes an independent assessment of the Future Entity proposals, providing a roadmap for the transition from OBL to a permanent standards-setting body.
- November 2024: Chancellor Rachel Reeves uses the Mansion House speech to confirm OBL’s role in coordinating the establishment of the Future Entity and sets a 2026 deadline for the statutory instrument.
- 2025–2026: The Data (Use and Access) Bill is expected to pass, providing the legal powers for "Smart Data" and the formalization of the Open Banking regulatory framework.
Industry Implications and Future Outlook
The selection of OBL to lead the next phase has been generally welcomed by the fintech community, though it also brings challenges. The transition must balance the interests of the "CMA9" (the nine largest banks that originally funded OBL) with those of smaller challenger banks and third-party providers (TPPs). One of the primary goals of the Future Entity will be to establish a sustainable funding model that does not rely solely on the largest banks, ensuring that all participants who benefit from the infrastructure contribute to its upkeep.
From a technical perspective, the move toward the Future Entity will likely involve a refinement of the Open Banking Standard. This includes improving the reliability of APIs (Application Programming Interfaces) and addressing issues such as "app-to-app" redirection and payment failure rates. By standardizing these elements, the industry can improve the user experience, making "Pay by Bank" as seamless as using a credit or debit card.
Furthermore, the integration of Open Banking into the broader Data (Use and Access) Act suggests that the UK is looking toward an "Open Data" economy. This legislative framework will allow for the secure sharing of data beyond just financial accounts, potentially revolutionizing how consumers manage their entire digital lives. For example, a "Smart Data" ecosystem could allow a single app to analyze a user’s bank transactions, energy usage, and mobile phone contract to automatically suggest more cost-effective providers across all three sectors.
As OBL prepares to engage with HM Treasury, the FCA, and industry stakeholders, the focus will remain on maintaining the UK’s competitive edge. The global landscape for Open Banking is becoming increasingly crowded, with the European Union updating its regulations (PSR/PSD3) and countries like Brazil and Australia rapidly advancing their own frameworks. The UK government’s commitment to a statutory framework by 2026 is a clear signal that it intends to remain at the forefront of this digital revolution.
The upcoming Open Banking Expo UK & Europe, scheduled for October in London, will serve as a significant forum for these discussions. Henk Van Hulle and other industry leaders are expected to provide further clarity on the roadmap for the Future Entity and how the transition will impact the hundreds of fintech firms currently operating in the UK.
In conclusion, the appointment of Open Banking Limited to coordinate the next stage of the Future Entity represents a maturing of the sector. It transitions the UK from a period of mandated experimentation into a phase of permanent, strategic growth. By aligning Open Banking with the National Payments Vision and the Data (Use and Access) Act, the UK government is positioning the country to capitalize on the economic benefits of a data-driven financial system, promising greater efficiency for businesses and more empowered consumers.
