Following the one-year anniversary of Open Banking going live in the UK, I was struck by how many headlines suggested it had somehow “failed” or is otherwise not fit for purpose.
The negative press surrounding Open Banking has stemmed from a variety of viewpoints. Some from a lack of understanding by journalists on the subject, some concerned with specific issues such as security and privacy, with a smaller number of nuanced well-written pieces, or people just not seeing the value.
Well, I'm here to share why as we move into 2019, these articles will cease.
Why do I think the negative headlines will stop? In my mind, there’s no doubt in 2019 perceptions will change. We can change the perceptions of the naysayers. And importantly, change the perceptions of the public.
One of the biggest criticisms of Open Banking to date is not enough people understand it or are using it, and this has curtailed uptake.
So, let me outline how I propose deconstructing this argument. First of all, I’ll explore the journey to date. All twelve months of it. Then we’ll take the viewpoint of the big banks. Have they changed over the last twelve months? I suggest they might well have done. Do they face challenges? Of course. Finally, we’ll counter ‘the public are scared’ / ‘don’t know what to do’ / ‘are afraid of change’ arguments.
Even if they can’t explain how OAuth2 works, do we think they like savings in time and money? I think they just might.
To be honest, I’m not 100% sure what was expected from the first year of Open Banking. Was there meant to be some all-consuming new bank feature that would see consumers embrace it in their masses? I’m not sure.
As I’ve iterated on more than one occasion, I've been working in the field of Open Banking and bank data for longer than I can remember and I know how fast things move when it comes to both Government legislation, while also attempting to change the fundamental relationship of banks and customers.
Think of an oil tanker. Stuck in reverse. Being pulled backwards by tug-boats. Going uphill.
I know, I know...
So we are where we are. And here is no bad place at all. Considerable movement forward has been made. Open Banking has been introduced. The OBIE has rolled out two of its four releases as per its roadmap. Nearly 20m API calls are being made on a month-to-month basis. New services and products are being brought to market at breakneck speed.
One of the criticisms I hear most frequently is the banks have not worked at the same rate as FinTech’s, the OBIE and others, and have generally lagged in enthusiasm.
I hardly blame them.
Open Banking has the capacity to change the underlying relationship between banks and their customers. In the near past, this relationship was revered, more akin to a clinician and patient in intimacy and longevity. As colleagues wrote in another article last week, UK bank customers are more likely to get divorced than dump their bank. (The divorce rate in England & Wales in 2017 was 8.4%, compared to a 4% bank switching rate.)
So to ask financial institutions to yield the data they hold on their customers may have been, shall we say, a bit of a shock? Have then the banks been slow to educate their customers on the possibilities now available? Have they been slow in developing new services that can help them to retain customers and win new business?
A cursory glance this morning at each of the CMA9 bank’s websites all articulate content on Open Banking. Around half have brought out products to capitalise on the opportunity brought about through Open Banking. (HSBC’s Connected Money, and Barclays and Lloyds both offering account aggregation in their respective apps being the highest profile.)
That said, it’s also clear the legacy institutions will need to work hard to further build and retain trust with their respective customers and to win new customers. Through the Current Account Switching Service (CASS), we can see for ourselves which banks are winning this battle for customers. The latest results from January 2019 are shown below.
Of the incumbents, we can see HSBC, with a net gain of 16,430; and Santander, with a net gain of 7,483, had good months. However, several high-street banks, including Barclays, Clydesdale, Halifax, Lloyds, NatWest and TSB all fared poorly.
Compare this to the Challengers, Nationwide, Starling and Monzo who all added considerable numbers and shed few.
This illustrates the ongoing issue many of the incumbent banks face. Technology is progressing quickly, Open Banking is here, and Open APIs are the future. Smaller, more nimble Challengers have been built with customer-centricity in mind, while dusty old mainframes hinder technological growth within the larger banks.
“First we thought the PC was a calculator. Then we found out how to turn numbers into letters with ASCII — and we thought it was a typewriter. Then we discovered graphics, and we thought it was a television. With the World Wide Web, we’ve realized it’s a brochure.”
- Douglas Adams
What the above shows us is there is a groundswell amongst the public at large for financial services to be responsive to consumer need and show commitment to their financial health – not the banks’ underlying profit margins.
I hardly need remind any reader of the impacts upon public confidence of 2009 and beyond.
In our analysis there is a clear public will for innovation, choice and competition within the financial sector. This encompasses all industries from personal banking, pensions, wealth management and savings.
The will, as we’ve demonstrated above, is shown by the rise and success of the Challenger banks. Their ability to base services on open APIs, offer new and innovative services, and discarding of the “old” ways of banking - such as overdraft charging - have all helped to generate a positive public perception.
Does the fact that there has to date, not been a “singular” use case with the ability to save substantial time and money within the consumer market mean Open Banking has failed? Or is this what is required to win over doubters?
What we have witnessed is individual companies, groupings and institutions all work diligently to use the new technologies in ways that are slowly, but noticeably changing the face of financial services.
I’ve mentioned the work carried out by the high-street banks already, who, like Challenger banks and FinTech’s are developing new consumer-facing propositions. I must give recognition to apps such as Yolt, who are realising a 2015 CMA report that called for a “marketplace of apps”, with their integrations of other FinTechs such as PensionBee and Wealthify. I couldn’t also fail to mention the launch of our own DirectID Insights, a B2B tool we’re confident will have a massive impact upon the industry.
That’s all from me
It struck me as we moved into 2019 the epitaph for Open Banking was already being penned - in my view erroneously - and it becomes all of us in the industry to elucidate and argue for its bright future.
The UK Government is to be commended for taking the lead on Open Banking. This position means we have been the first to find each individual problem, but will also be the first to reap rewards.
As the volume of products brought out continues to increase at pace, the capability and capacity for what can be done through Open Banking will grow. FinTech’s and Challenger banks are already doing their part, and now we can see a clear change in mindset from the legacy institutions.
As I explained in a previous post, the convenience consumers will be able to derive through Open Banking will result in its wholesale adoption.
Until that point comes, it is up to all of us who work in the ecosystem to continue making the arguments in defence of Open Banking.