Joint Regulatory Oversight Committee publishes commercial pricing principles for open banking

The Financial Conduct Authority, FCA, has issued a press statement to inform of the publication of commercial pricing principles for open banking by the Joint Regulatory Oversight Committee (JROC). The JROC is a cross-authority committee comprised of members of the FCA, the HM Treasury, the Competition and Markets Authority (CMA), and the Payment Systems Regulator (PSR). The principles are high level and designed to ensure the uptake of open banking in UK, while maintaining industry competition and a fair pricing for all involved parties.
Specifically, the principles include five high level recommendations that shall be considered by banks and payment service providers (PSPs) when determining the fees charged to third party providers (TPPs) for maintaining and allowing access to premium APIs (Application Programming Interfaces) for the purpose of providing open banking services, including the following: The fees shall
(1) broadly reflect relevant long run costs of providing premium APIs: Principle 1 states that charges for premium API access should broadly recover directly attributable and efficiently incurred economic costs. This means that PSPs should consider which costs are directly related to providing premium APIs. The charges should ensure fair value for TPPs and should not exceed the directly attributable and efficiently incurred costs or allow for excessive returns. Only costs specific to the provision of the premium API and its associated services should be included, while costs of other services or wider business operations should not be recovered through premium API prices. The charges should be reasonable and not reflect any market power or market distortions of the ASPSP.
(2) incentivise investment and innovation in premium APIs: Principle 2 emphasizes the need to incentivize investment and innovation in premium APIs in the context of open banking. The charges imposed on these APIs should allow the banks to earn a long-term return that compensates for associated risks and rewards them for innovations benefiting end users. However, these charges should also encourage TPPs to continue investing and innovating while ensuring that their investments and innovations benefit businesses and customers. In this context the JROC notes that the pricing structure itself can be used to incentivize innovation and investment by providing revenue certainty for banks and cost certainty for TPPs over a specific period of time.
(3) incentivise take up of open banking by consumers and businesses and use of network effects: Principle 3 focuses on incentivizing the adoption of open banking by consumers and businesses while leveraging network effects. Pricing plays a crucial role in promoting further adoption, both in terms of the price level and structure. The success of open banking relies on increasing the number of users and providers, creating network effects that enhance the value for all participants. To encourage take-up of open banking through premium APIs, several options are presented in this context: widespread adoption by all parties, profiling of cost recovery over time, tiered pricing and volume discounts based on transaction volumes or services provided, and the choice between fixed fees or percentage-based pricing depending on the product, use case, and TPP business model.
(4) treat TPPs fairly: Principle 4 emphasizes the importance of treating TPPs fairly in the context of premium APIs and open banking. The aim is to prevent unfair competitive advantages that may harm merchants and customers and limit competition in the sector. Premium API charges should be set impartially, without favoring or disadvantaging specific TPPs, and pricing should not discourage the entry or growth of TPPs or investment in open banking. However, there may be valid economic reasons for different TPPs to pay different prices based on underlying costs, services provided, and the need to recover costs efficiently. Existing contracts between PSPs and TPPs should not unfairly disadvantage the TPPs under new commercial arrangements.
(5) be transparent : Principle 5 emphasizes the need for transparency and clarity in fees and charges related to premium APIs and open banking. Clear and accessible pricing information allows TPPs to make informed decisions about investing and encourages fair competition.