Open Banking has dominated the banking conversation for the past few years; what are the long-term implications of this financial revolution?
Open Banking has been dominating the banking conversation for the last four or five years, following the publication of PSD2 back in 2015. In the UK, the nine largest banks were compelled to provide Open API access from January 2018 by the Competition and Markets Authority. There have been many interesting developments over the last 16 months but nothing life or bank changing.
There is little doubt that once Open Banking access becomes the norm across the industry we will see rapid adoption and a launch of many new products, services and approaches. However, we do have to bring the question back to consumers and businesses and determine how our industry builds up a level of trust that will allow “open access” to their personal financial data.
What is hindering banks from making open banking a success?
Firstly, we aren’t at the end of the revolution. We are only now approaching the end of the beginning with the implementation of PSD2, which will create ubiquity of APIs, or at least everyone offering API access, given the multitude of European standards.
It’s going to take customers time to adapt and trust Open Banking enabled facilities. Automated financial coaching, or bank accounts aggregated into a new app based service, will intrigue some, but scare many and in the coming weeks and months it’s important that the banking industry seeks to actively build that trust and focus on the positives.
Open Banking needs banks and fintechs to work together more effectively. In reality, we aren’t that far apart, and we agree on much, but the pace which fintechs want to move and the safety/risk approach that banks need to apply can often seem poles apart. However, we are seeing more and more collaboration between these two sectors, which is overcoming the differences, but both need to re-double their efforts to work together for the good of their shared customers.
We recently published our Bank to the Future Report, looking at how banking will change in the years ahead. The findings flagged the importance of person to person advice and communication, particularly where more complex transactions (e.g. applying for a mortgage) or problem resolution is required. That need for the human touch was evident in both young and old customer groups. So as we develop more and more digital and Open Banking based services it will be important to ensure customers feel comfortable that there is somewhere to go or someone to talk to when they encounter problems.
How are BigTechs perceived by banks/fintechs: are they a threat, a partner, or both?
In recent months the big question has been which poses the biggest threat to Banks - fintechs or BigTechs. However, I think a more important question is how all three can collaborate to provide the next generation of banking services to customers in a way that makes them comfortable and adds value.
If you look at Apple, Google, Facebook and Amazon, they are all involved in Financial Services to different extents. For example, many of us love the convenience of Amazon’s one click services, even though we have just given them all of our payment credentials. These organisations have captured the hearts and minds of their customers and users, but have they gained enough trust to encourage customers to commit their financial future to them?
Are financial institutions prepared to handle the new challenges and risks that BigTechs bring about?
Yes - BigTech and the internet of things will start to dominate how we interact with our money and bank accounts, and indeed over time they may enter the banking market. However, for now, it is more likely that they will partner with banks and fintechs to the benefit of consumers. The trick for banks will be to work out how best to collaborate and partner.
How will open APIs reshape the banking industry in the next 5 years?
Open Banking APIs will change the Banking industry over the next five years, but it won’t happen overnight. I think we will see change in four key areas:
Money Management – we will see much more use of aggregation, coaching and algorithms driving advice and automation of money movement;
Customer Service – interactions between banks and customers will become much more personalised and digitised making use of robotics and AI as well as Open Banking;
Payment Methods – the integration of devices, wearable technology and the development of invisible background payments will be more prevalent. Interbank payments are likely to hold a larger percentage of ecommerce transactions across Europe;
Trust, security and verification – Biometrics will become much more widely used, but customers will need to trust both their money and, equally important, that their data is safe. Trust is something that takes a time to build and a moment to lose, so resilience, safety and security of new services coming to market will be paramount.
All that being said, we will still have branches and ATMs, cash will still be around, and the good old cheque will still play a part in society.
As we transition to a new world, with new entrants, some banks disappearing, and digital and devices dominating the way we interact with our money, one thing will continue unabated - customers demand for safety and security. It has been the cornerstone of banking since the beginning and will continue to do so in a digitally dominated financial world.
About Mark Curran
Mark’s career spans 30 years in Product, Payment and Client facing roles within RBS, Bank of Scotland and Lloyds and is currently Director of Data, Payments and Open Banking for CYBG.
Mark has built core knowledge across the Payments landscape and plays a leading role in defining the strategic payments direction for the Group. Mark’s current role is diverse with responsibilities spanning Risk, Regulation, Resilience, IT, Operations and a wider industry lens. Mark chaired the UK Industry wide programme to deliver a UK wide Customer Switching Service (across 17 Financial Institutions and 37 Banking brands) culminating in the successful launch in September 2013. Mark has played a key role in definition of PSD2 and Open Banking initially at Lloyds Banking Group and now as Director of Data, Payments and Open Banking at CYBG. Mark is a Fellow of the Chartered Institute of Bankers (Scotland) and is involved in the School for Social Entrepreneurs.
About CYBG
Together, the established and trusted brands of Clydesdale Bank, Yorkshire Bank and Virgin Money offer a full range of financial products and services to help people and businesses grow. Big enough to matter, small enough to care, we have a strong personal customer base and a business banking capability through a UK-wide network.
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