In January 2018, Open Banking was made live in the UK. Only recently, in September 2019, PSD2 similarly, was enacted across the EU.
These are momentous pieces of legislation. Each, in their respective implementations, will forever alter the face of the finance industry.
To say that they have been long in the making is something of an understatement of grand proportions. I began working in bank data a full decade ago, in a time before Open Banking existed.
The potential for change Open Banking could bring about has always been clear to me though, and it’s for this reason that I’ve called for its introduction for so long.
When we consider the changes consumers and banks are championing in their working practices, what is also abundantly clear, is that neither piece of legislation is going away.
Indeed, in my conversations with regulators both in the UK and abroad, what is clear is there is potential for strengthening and broadening of the legislation.
Open Banking Acceptance
Open Banking has been with us in the UK for two years now. What we have seen in this time has been an initial reticence from the banks, that has now moved to a position of, at worst, acceptance, and in some cases full-throated enthusiasm.
The reasons for their initial scepticism are clear and have been covered off elsewhere. Suffice to say; I think it understandable why they would be concerned about giving away one of their core pieces of IP to relatively unknown FinTech’s.
Consumer attitudes have been stickier. This stickiness is due to years of conditioning from banks who have always urged secrecy on usernames and passwords to impede would-be fraudsters. The perception that we “can give companies access to our bank details and statements” is proving difficult to shift.
The industry, involving both FinTech’s and banks are currently working hard to remove this perception, though I recognise there is some way to go.
One other reason I think consumers have been slow to embrace Open Banking entirely has been, as yet, there has not been one all-encompassing app from which they can control their entire financial lives.
FinTech’s Vie for Customers
FinTech applications are developing piecemeal. Some companies focus on banks relationship with customers, looking at AML, KYC and customer onboarding, while others are developing applications for the customers themselves. This development also includes the banks who have invested heavily in Open Banking and illustrated through the prevalence of apps offering account aggregation.
In turn, this has led to a situation where there are myriad competing FinTech’s, many working on similar applications, and for the same potential customers. Within this bracket sits ourselves at DirectID, alongside others such as Tink, TrueLayer, Castlight Financial, bud and Salt Edge.
Beyond the tech startups, the banks have also taken massive strides in the build and roll-out of their APIs. The credit reference agencies (CRAs) have also taken an interest in the use of bank data and Open Banking, recognising, correctly, the technology can update and amend their retrospective and outdated practices.
I don’t write these words to dissuade any other individuals or companies from entering the race on bank data.
On the contrary, I welcome all competition with a warm embrace.
Why? For two reasons.
Welcome to Open Banking
The first is because it is only through further innovation, forward-thinking and relentless customer focus that new products and services are being brought to market.
Every new application built on bank data, every consumer brought into the fold when a financial provider once overlooked them, or piece of technology that works to enhance security and mitigate against fraud and criminality, shows the validity, value and salience of bank data.
The ground covered in the last two years has been nothing short of startling. Where there was nothing, there is now a whole ecosystem building, innovating and competing.
The creation of a FinTech ecosystem may not be evident to the consumer. As new products are launched, each application will begin to shape – for the better – our financial lives.
It may not be tomorrow that an average person on the street is using bank data to compare deals to save themselves money or using it to apply for credit or a loan. But with every innovation, we take small steps towards that juncture.
The second reason is that as the market grows, and more companies compete in producing new tools, it proves the validity of the market.
Customers require solutions brought to them by FinTech’s, and FinTech’s need customers to purchase the solutions. As more companies join the ecosystem, more customers will try the solutions on offer to them. And as customer become au-fait with the products, it gives us scope to extend our potential and begin building new and better services.
Lest we forget, what we, as an ecosystem are striving for, is the ability to make unprecedented savings in time, resource, and ultimately, money for consumers and businesses alike.
My focus is squarely on the B2B realm working with our business customers, particularly those working in financial services, or in areas in which ID checking or credit checking is commonplace, the value of bank data is already bringing about enormous benefits.
Improvements in decision making with better quality data, operational cost savings by making better decisions faster with less resource, and genuinely understanding applicant’s creditworthiness, (including verification of income), all lessen the need for reliance on CRAs, cuts down on fraudulent applications, and ultimately enhances and enlarges the potential customer pool.
The benefits for consumers are similarly lengthy; but can best be summed up by lower prices, better more efficient services working for them, and more competitive offerings.
And it this that takes us to the crux.
Open Banking, and by extension, the bank data it provides is just data.
Insights through Data
To derive real value from this data; to be able to offer both consumers and firms the insights and value they require to benefit from the data, requires the work of everyone in the ecosystem to continue innovating and creating new products that effectively utilise data.
The new services brought to market in these two short years represents only the cusp of the potential that bank data represents.
I spoke about this more in a presentation I gave earlier this year, but in short, I refer to this as a “bottom-up” approach of consuming the data. While there has been much focus on technical standards and regulatory oversight within Open Banking (“top-down”), what will determine how successful Open Banking will be, is in the consumption.
Simply put, for Open Banking to become the revolutionary force I believe it can be, requires consumption of the data.
And we need this market-driven approach to win consumers round to the value bank data can offer them. Hoping that if we build it and they will come is not enough. The convenience, savings in time and effort; it’s by evidencing these traits in everything we do which will win round the hearts and minds of the public.
So, here is my call to industry. For consumers and business to understand and enjoy the privileges bank data can provide, we need to demonstrate and extol these benefits.
Once understood, the insights and advantages brought are tremendous. It is incumbent on all of us to continue bringing new features to market that will together, enhance and broaden the scope of Open Banking and bank data.