Insurance is the missing link in the UK’s open banking success

The UK’s open banking landscape has built a global reputation for its technical innovation and regulatory prowess. However, despite this leadership, the industry has struggled to maintain the level of innovation that kick-started the global rise of open banking infrastructure. The core challenge lies not in technology but in the commercial and liability frameworks that underpin the ecosystem. Helen Child, CEO of Open Banking Excellence, recently proposed a pragmatic solution that could unlock the next stage of growth by embedding insurance into the open banking liability model. This proposal could accelerate fintech product innovation and increase public trust, bringing the UK back to the forefront of the global open banking race.

The liability challenge in open banking

Open banking’s technical architecture is robust. It facilitates secure, consent-driven data sharing between banks and third-party providers, enabling the creation of new products and services across the finance sector. Yet, the commercial arrangements around liability have not kept pace. Today, banks and fintechs shoulder significant risk concerning fraud and cyber breaches. This risk is often unevenly distributed and poorly managed, creating barriers to investment and innovation.

Large banks can absorb this risk, but at a considerable capital cost. For smaller fintechs and new entrants, the liability burden is one of the most significant obstacles to scaling. The result is a market where technical capability outstrips commercial viability. Without a more balanced approach to liability, the sector’s growth will remain constrained.

Insurance as a scalable solution

Helen Child proposes the introduction of an insurance-backed liability framework that would standardise risk management across the open banking value chain. By leveraging the UK’s world-class insurance sector, this model pools risk and applies risk-based pricing to create capacity and predictability.

This approach brings several clear benefits. It reduces capital strain on banks by shifting part of the liability risk to insurers. It also levels the playing field for fintechs, enabling them to innovate without incurring excessive risk. It also strengthens consumer protection, a crucial factor in maintaining trust and meeting regulatory requirements.

The insurance model also aligns incentives across all participants. When risk is professionally priced and managed, everyone involved has a shared interest in maintaining operational resilience and security. This alignment encourages collaboration and supports the development of new services and products built on a stronger, more stable foundation. 

Building trust through transparency and protection

Public trust remains a critical factor in the success of open banking and open finance. Recent incidents of inconsistent consumer protection have demonstrated the vulnerabilities in the current framework. Helen Child’s suggestion of an industry-backed trust mark, supported by both insurance and accreditation, directly addresses this challenge.

A recognised mark of trust would signal to consumers that a product or service meets high standards for security and liability coverage. This kind of transparency simplifies decision-making and helps build confidence, encouraging broader adoption of open banking-enabled products.

Embedding insurance into the model provides a safety net for consumers, offering protection against unforeseen events. In the event of fraud or failure, insured parties can offer timely compensation, reducing financial harm and reinforcing confidence in digital financial services.

Aligning with regulatory and market trends

The timing of this insurance-backed liability model is particularly relevant. The UK government’s Data (Use and Access) Bill signals a commitment to expanding open banking into open finance, encompassing pensions, insurance, utilities and more. This expansion increases the complexity and volume of data flows, intensifying the need for scalable and resilient liability arrangements.
Industry initiatives, like the development of commercial variable recurring payments, show what’s possible through collaboration and focused effort. Building an insurance-backed framework into this progress can provide the commercial stability needed to support long-term growth and broader adoption.

Internationally, markets like Brazil have already extended open finance to include insurance data sharing, which is supported by regulatory mandates and industry cooperation. The UK has an excellent opportunity to lead globally by combining regulatory expertise with innovative commercial models.

The role of AI and data-driven risk management

Open banking infrastructure and insurance frameworks lay the groundwork for something bigger: AI-powered risk management. With access to richer, real-time data, insurers can move beyond traditional underwriting and use predictive analytics to assess and manage risk more accurately and proactively.

AI can identify fraud patterns and personalise products at scale, improving both operational efficiency and the customer experience. An insurance-backed liability model supports these advancements by providing a solid foundation for responsible innovation. With professionally managed and transparent risk, the conditions are in place for data-driven decision-making and embedded finance to grow with confidence.

Open finance’s future

The technical rails are in place, and consumer demand for seamless, data-driven financial services is growing rapidly. The requirement now is a commercial and governance framework that supports innovation and trust.

Helen Child’s insurance-backed liability model addresses this need with a practical and market-driven solution. By standardising risk management and embedding consumer protection, the model creates a resilient foundation that will allow open banking to evolve into open finance.

This approach will accelerate digital innovation across financial services, enabling institutions to deliver AI-powered, data-driven solutions that work for people. The UK is well-positioned to lead this shift, with the expertise and infrastructure already in place.