7th February 2019

Happy Birthday, Open Banking. Why Didn’t You Say?

 

Zennan Green

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January 2019 came and went.


For many of us, it seemed to take an eternity to pass. Long, dark, cold nights – and if you happen to have been in parts of the US in January 2019, just cold. The euphoria and celebrations of the holiday season have long since given way to the reality of the tightening purse strings, and the slow but certain realisation that many of our New Year Resolutions were never likely to last beyond the first couple of weeks.


But as we slip into February, how many of us realised that January also marked the first anniversary of the Second Payment Services Directive (PSD2) and Open Banking coming in to force across Europe and the UK? Not many, it would seem. A poll conducted in the UK by YouGov showed that several months after the launch deadline, just over a quarter of UK adults had even heard of Open Banking, let alone understand what it is - despite a considerable amount of press and media attention.


We should probably have expected nothing more. Some commentators have described Open Banking – and the enabling technology, Open APIs – as a “quiet revolution” in banking and how we manage our personal financial business. Paradoxically, in the fast-paced world of banking and finance, change is something that only ever happens slowly.


For many people, and certainly for those with straightforward financial and banking arrangements, the first reaction may be to question what can Open Banking offer that the banks can’t already provide with their existing, proven, and secure online tools? Good question. As the old adage says, just because we can doesn’t mean we should – at least, not straight away.


Yet the fact is that there are hundreds, even thousands, of fintech startups springing up around the world. So much so that sub-categories of “fintech” have emerged – InsurTech, PayTech, account aggregation… each fintech has managed to identify a gap in the market where they believe they can make consumers’ financial lives easier. Better or more convenient in some way, over and above what the banks may offer. And increasingly, consumers are using the offerings from these fintechs – solutions that have been built for a mobile-first, me-first, market.


Until last January, the job of the fintech was – in many cases – made more difficult by the fact that they could not easily access consumers’ bank accounts. Of course, they have been able to work around this by using a number of technical solutions, with varying degrees of success. But with Open Banking their job has become a whole lot easier, as the banks are obliged to provide secure access to relevant financial information.


And, at the most basic level, that is all that Open Banking really is. Secure access to consumers’ financial information.


With the challenge of access taken care of, the fintechs are free to concentrate on providing new and innovative services, and to develop the incredible, rich, “wow” experiences that consumers are ever more accustomed to. The banks, too, can take advantage of this level of access. HSBC, Barclays and others have already launched apps that allow their customers to aggregate and manage accounts from other banks and institutions.

Clever stuff. But therein also lies a problem.


What functionality can one provider offer consumers, that another provider cannot replicate or improve? Once everyone has access to the same secure, timely and accurate data, how can anybody differentiate? Which app should a consumer choose to use?


But a bigger challenge to overcome may be that as digital banking services develop further and provide greater functionality and convenience, banking becomes more de-humanised. Customers become more transactional, more remote – and more disengaged.


Why does that matter? Well, in their recent UK Financial Services Customer Survey (2018), Accenture revealed that the human touch is considered “important” by over 60% of respondents, particularly at difficult moments or when making big decisions. And research by Motista suggested that fully engaged, emotionally connected customers are nearly six times more valuable to a bank than those who are just highly satisfied.


So, while Open Banking has the potential to improve the digital banking experiences of consumers, physical channels remain important and will continue to provide differentiation and superior customer engagement.


The adoption and use of Open Banking will continue to grow. It will be the key enabler of future apps and services that provide functionality which, one day, we will look back and wonder how we ever managed without. Secure and seamless access to our financial data will become table stakes for all but the most trivial financial app.


The truth is, when it comes to Open Banking, the real measure of success could be that nobody even realises it exists. It sits behind all our digital banking products quietly doing its stuff.

So there probably won’t be a cake next January either.