(Five min fast read, a perspective on the direction, speed of travel with UK open banking and a few predictions)
Open banking – sounds good right? Surely open is better than closed and if open is ‘new’ then any closed previous approaches from our cumbersome Big UK banks must surely be in their interests?! In this current environment where most of us suffer ignorance or inertia it is no surprise only 5% of us a year bother to switch banks, 85% of SME’s bank only the Big 4 etc etc…And who really has the the time to make use of all these online existing money comparison services to really work out if we are getting the best deal…
Why do we need open banking?
Boiled right down it’s a bit like going on safari only ever seeing an elephant and finding out the other big four never existed in the first place. Open Banking is a ‘reset’ to the game reserve of consumer and business banking services and dovetails into part of a wider set of market measures aimed to rebalance the environment with five big ones:
- More banks and banking services. Let’s put our golden eggs in more baskets. Recall 2008’s financial crisis and an over dependance from consumers, businesses and the state on too few Banks, (the Financial Conduct Authority has taken it’s time but has since issued only 30 new Banking licenses). Still some way to go to catchup the Germans — they have a flourishing and diverse Banking setup with thousands of Banks who don’t ‘strangle their economy!’
- Make it easier to compete. Traditional methods of comparing financial products or understanding financial services pre-date the almost 27 year old World Wide Web and as such were not mandated to be data driven. Ever tried to compare one financial product to another in a simple way using a money comparison site, only to find out it misses some mortgages or loans from providers off its catalogue, and then when you do find them you can’t make an easy comparison.
- Make it FAIR. Easier means more competition yes, but levelling the playing field with data driven regulation is part of this. It has suited Banks to keep making it much harder for SME’s to access the market and obfuscate the real facts either by not making the data available or by presenting in a format not easy for third parties to work with.
- Make banking safer, smarter. For years many banks have been using screen scraping to support third party financial management applications or services. Screen scraping really is ‘sketchy from a security point of view’ and whilst that is not the only reason for this change, application programmable interfaces (API’s) are much more secure and offer more opportunity for customers and banks to add value to the data and address a real problem. Customers data is across too many silos and as such is not really working for them. This might sound like gobbledygook but think of it another way: if you were giving someone access to your home to make a delivery would you rather give them a set of keys or ensure they had a one time access only code to make that delivery? (BTW like it or not Amazon will be bringing this soon to the UK)
- Innovation. Make the data accessible and who knows what someone might build — maybe someone will create brand new multi billion dollar businesses we had never even thought of. Last and by no means least this is where the hype, hope and extreme optimism comes in. Many excited tech pundits talk of a fizzing ecosystem of financial services choice: personal financial management offerings, completely new products, peer to peer this, crypto that — the reality is the vast majority of people just want simpler better banking services they understand.
So what does open banking really mean — to you and me?
- Banks sharing the non sensitive data they have which can unlock value for everyone: (currently the UK’s largest 9 but likely all will get onboard) have been mandated by the Competition and Markets authority to make certain data ‘openly’ available — e.g. information on branches, financial products etc. Making the data open is meant to make it easier to use, reuse or connect to other data. Imagine faster easier and true like for like comparison of financial products and open the door for Third Party Provider (TPP’s) to embed these data in new apps and services. Imagine knowing where every ATM of a particular type or provider is at a given time and place and overlaying this with transport data.
- Banks enabling customers to agree to share their transaction data in the hope they can secure better services: this is the bolder of the changes.
How is it going so far?
Forget the hype. Five of the nine big banks are late making their open banking API’s available and have missed the 13th Jan 2018 deadline. Things are moving slowly. And with the easy first stage open banking data sharing regulations in 2017 they still did not do a great job — many have adopted appropriate open licensing for data they have released. Taken at face value all the banks are slow at doing digital properly, partly because of their entrenched technology systems but as much because of their lack of a digital culture, way of thinking and a complacent perspective on the market. I recall meeting a senior banking executive late in 2017 who scoffed that the CEO of a FinTech startup I work with still contributes code to his business and would be actively involved in a joint project. I drew their attention to the fact that the C suites of some of the world’s highest growth technology businesses are staffed by technologists; surely they would be delighted to have this CEO and tech genius working on their project? A lot of people in many of the banks still don’t get it or are struggling to see the future.
So what is going to happen — when? Some predictions…
Market press is generally one sided — heralding a bold bright new dawn for banking.
- HYPE: Market-wide open banking which will benefit everyone will take a long, long time…Aside from the technical hurdles and practical delays, to my mind a bigger barrier is the human one and cultural Luddite perspectives so clearly articulated in the Guardian this weekend. Such, fear uncertainty and doubt will mean real adoption drags its feet in the months and years ahead and there are, however, some valid points in here about early mistakes with the tech and security being made. If we assume most of the people with most of the money in the UK are in an older demographic surely we can hazard a bet they will be amongst some of the most nervous about adopting new approaches to consent and sharing their data? Reminiscent of the early days of online banking — a lot of fear factor to overcome. Couple that with the snails pace of the FCA having to accredit new TPP’s and you don’t have the most dynamic market conditions for change to prosper in.
- HOPE: Much of the real innovation and market change will come from smaller nimbler companies, renegade new banking entrants. Those who obsess about their customer segments, tirelessly pursue new value and have deep pockets and an ability to depend on patient backers; as they will likely be burning a lot of venture money to get there. Cue challenger banks and others…Just as we saw innovators such as peer-to-peer lenders prove their value with data in 2013 so I expect a new guard to emerge.
- REALITY: Platform tech companies will likely make early inroads. Somewhat contradictory of my preceding point but the FANGS (Facebook, Amazon, Apple, Netflix, Google — I added Apple!) have the technological horsepower and cultural mindset to bring about some of the quick customer wins. As the big nine banks start to make their open banking API’s available, I fully expect Amazon and others will start to offer me the possibility show my a realtime account balance after I make a purchase. Not only because I might find this useful but because holding some sway on a what is a traditional banking service is for Amazon a step towards a new market — and their ambition for growth and customer experience is relentless.
So where do I stand?
Open banking will be better banking for everyone, in time. Safer, fairer and more able to offer choice. I am of course biased as full disclosure a little over three years ago working as Commercial Director at ODIHQ I stumbled across TESOBE|Open Bank Project which in part served as the inspiration for applying the principles of open source technology to make a better world of banking and which grabbed the attention of bright No 10 Downing Street policy mind John Gibson. What followed was a whirlwind of activity: Treasury and British Bankers Association engagement, assessment of existing flawed methods for sharing data in banking and the afore mentioned policy paper. Four years on and we are just getting started!