Open banking is a new initiative from the government, designed to promote competition in the UK banking sector, whilst helping to put the UK financial market at the forefront of the international map for innovation. At the heart of this initiative are two pieces of a regulatory puzzle that together have the potential to reshape the banking landscape.
The new Midata component , launched on 26th March, aims to drive competition through the UK banking sector by making it much easier for customers to evaluate (and choose) banks. Through price comparison sites such as gocompare.com, consumers are able to upload 12 months’ banking data and generate a personalised review of the accounts that are best for them.
Open data initiatives will allow Fintech developers greater access to data stored by banks, enabling them to develop apps with user-friendly intelligence. Consumers will in turn benefit from the increased transparency of their financial information by gaining an increased understanding of their finances. Ultimately, opening up data enables customers to make clearer judgements about their financial activity and the products and services that are best for them.
By standardising these APIs, which is the second component of the initiative expected late 2015, banks and third party developers can work together to create compelling new app-based services with a structure and partnership akin to that of the Apple App Store. In this situation the bank acts as the equivalent of Apple, hosting apps developed by a community of innovators in their own banking app store and leveraging the full potential of the developer community together with the ethos and service standards the bank holds true.
Friend or foe?
I believe that much of the hesitation surrounding open banking is misplaced. I frequently hear concerns about the increased visibility from price comparison sites resulting in customers switching accounts in their droves (it hasn’t happened so far), customers being able to switch accounts on a whim, the increased competition this brings driving down value from services, and as a result, the constant need to invest more resources into innovation to maintain the services customers demand.
While there are already financial apps that allow customers to compare bank products, they are limited because they work by scraping information from the customer interface. While this provides a certain level of information to the user, the security of such procedures leaves much to be desired. There are safety concerns about providing third parties with personal banking logins and passwords, and by doing so customers may be breaking their bank’s terms and conditions for online access. Using these services can leave customers vulnerable to personal liabilities. As custodians of the industry, we are obligated to make these processes as secure as they can be.
Getting closer to our customers
The opportunity for open banking goes far beyond these price comparison sites. The real opportunity is to develop apps that deliver new services to customers by pooling resources from the best brains of Fintech and the banking industry. If seen as an opportunity rather than a threat, such activity can offer massive benefits for banks’ customer retention programmes. Credit Agricole has already seized the opportunity by creating CAStore, an online portal that facilitates the development of apps by bringing together those with the ideas with those with the skills to develop them.
We all have apps on our mobile devices that we wouldn’t be without. Imagine asking some of the 250 million Facebook app users to uninstall it from their phone – many would look at you as if you had asked them to cut off their right arm. Facebook has become a part of their everyday, and in some cases every hour, life. People rely on the information that it feeds them from their friends and family, and they feel a real need to have this information at their fingertips. The same could be true for banking apps of the future. By working together with developers, not only allowing but actively encouraging them to access previously closely-guarded data, banks can offer their customers life-enhancing apps that become a part of their everyday activity and change the relationship they have with their bank from the transactional to the emotional. Ask any marketing department, and they will tell you that this is the Holy Grail in customer retention and advocacy.
Sharing is caring
The open bank project in Germany has funded diverse projects, from apps that turn your account into music, to services that give charities a way of safely sharing financial information with stakeholders. There is a fantastic opportunity for banks to work alongside the Fintech masterminds to create customer-centred digital services that integrate seamlessly into existing banking products and services. The opportunities are endless, from cross-platform sales to arranging meetings with a bank manager, and from pinging a message about savings to a customer at the point of need to providing instant up-to-date money management guidance at the point of purchase. The opportunities are only limited by our hesitation to share.
Better the devil you know?
One key question in the debate surrounding open banking APIs focuses on the issue of liability. If a customer gets incorrect information from an app or there is a security breach, who becomes liable for any losses? The answer to this question is likely to shape just how the market will structure itself and who will lead on developments.
Even despite conduct concerns, there is a sense of trust in the banking industry from customers to manage data security well. Now banks just need to integrate the skills of the Fintech developers into their systems, and both the customer and the bank will see the benefit of a secure place to keep money coupled with easy-to-use ways of managing it.
We live in the Social Information Age. Consumer demand for greater collaboration is evident in our leisure pursuits, online behaviours, and our politics. Why should banking be any different?