It has been a year since Open Banking launched with promises of changing the industry forever. Has it been as successful as first thought? Are banks benefiting from the evolution or is it pushing the incumbents further behind in innovation. Patrick Brusnahan speaks to experts on the Open Banking anniversary and what lies ahead
Tom Renwick, strategy analyst at Atom bank
Whilst Open Banking began not with a bang, but the proverbial whimper; very few aside from the most ardent of Open Banking enthusiasts were expecting a ‘revolution’ in January. Whilst the OBIE has made significant strides towards a more expansive API specification – there is still much to be done. The implementation of Open Banking in the UK is still very much in its infancy. Equally, compelling API enabled propositions are still nascent in their development. The promise of Open Banking will only be realised when there are fintech’s and banks alike producing innovative products and services leveraging APIs that seek to address real customer needs.
PSD2 requires strong customer authentication to be performed in certain circumstances. It is imperative for the success of the wider ecosystem that banks ensure that the experience is easy, intuitive and secure. Unfortunately, a number of market implementations fall short of these critical design principles. Led by the OBIE, a major focus for the first half of 2019 will be on improving customer experience, including the introduction of app-to-app and decoupled redirection.
In September 2019 the regulatory technical standards on strong customer authentication come into force. And it is this date that triggers the real starting gun.
The market developments that Open Banking is likely to bring about are far reaching and could facilitate a more radical transformation of the retail banking sector; but the period over which that takes place is uncertain.
Imran Gulamhuseinwala OBE, Trustee of the Open Banking Implementation Entity (OBIE)
Two years ago, Open Banking was regarded by many as a typical compliance exercise championed only by a handful of fintechs – more tech spend driven by compliance rather than business case or customer need. This is no longer the case.
Banks have very firmly moved from viewing Open Banking as a compliance exercise to an opportunity to compete and innovate. They have worked hard to implement the Standards despite many challenges and an ambitious timescale. Yet already we have seen some impressive early signs of new technologies powered by Open Banking – even though we are only midway through our road map with lots more to come.
Consumers are gradually being offered products and services which will securely help them move, manage and make more of their money. The often over-looked, hardworking population of SMEs – now totalling over five million businesses – are also benefiting from new technologies which are supporting their efforts to boost profit, performance and productivity.
Open Banking anniversary celebration?
We are also seeing some early and exciting signs of how Open Banking is powering technologies to help address some of society’s issues, in particular in the debt advice area. In short, it is clear that there are signs of an emerging dynamic, vibrant and developing ecosystem – an ecosystem which is rapidly becoming more sophisticated and expansive in its coverage. But with the line of sight we have into the open banking “pipeline”, this is going to considerably ramp up in 2019.
Today, we have over 100 regulated entities enrolled in Open Banking with in excess of 100 waiting to join. We expect the ecosystem to develop with even greater momentum and pace not least as we see greater conformance with the implementation of the Standards as well as greater innovation in the market.
All of which is encouraging. However, our focus for 2019 is firmly fixed on an enhanced user experience – what we have today is, for sure, a step in the right direction but it does not yet meet the high standards of conformance and performance we expect. However, I am confident that 2019 – post March and the implementation of v3 of our Standards– will bring a mobile-enabled and frictionless customer journey.
Ed Maslaveckas, co-founder and CEO at Bud
When it comes to finance, most people just want a simpler life and if you already actively budget, open banking now makes that simpler. That’s good progress, but for people who aren’t that engaged with their finances, it’s still a complication. This is starting to change already as we get better at reducing the manual effort needed to manage finances but the pace of that will pick up in 2019.
We know that the regulatory standards are going to evolve next year, making it much more attractive for companies to make their products more flexible, and as this happens it will free up innovative companies to start designing more engaging experiences.
We need to get to the point where you can be financially healthier and at the same time, do less admin work. We’ve got the beginnings of that now, with automated tools like our rent recognition service that help people to share rent payment history with potential creditors, but we’ve only scratched the surface of what’s possible. As 2019 progresses we’ll see more and more of that kind of opportunity, to create smart automations that save people time whilst helping them with their finances.
Dave Locke, Chief Technology Adviser at World Wide Technology
In the last year, the Open Banking initiative has contributed to a significant surge in the number and type of financial service providers.
As a result, we are seeing an unprecedented amount of change from traditional financial institutions that need to safely unwind their technical debt, much of which is motivated by the need to compete with new entrants in the market.
However, the complex nature of existing systems built with conflicting metrics over the years acts as a significant barrier to this. Legacy infrastructures are typically built from an interdependent patchwork of applications, which communicate with one another in complicated ways.
Challenger banks, on the other hand, are born on the cloud and don’t have to contend with the legacy IT structures of most traditional banks. This enables them to better organise their operations around the customers’ needs and provide incremental improvements to their systems – in a way that legacy banks have difficulty doing.
Lu Zurawski, Consumer Payments Practice Lead at ACI Worldwide
When UK Open Banking went live in January 2018, it faced a largely indifferent or even sceptical public. One year on and the objectives of this new era of financial services are starting to make more sense to many ordinary citizens.
Open Banking is no longer just a regulatory project forced upon the UK’s nine biggest banks. Over 20 banks have now opened their account systems to new service providers, and over 80 new companies have registered as an Open Banking provider of new customer-friendly financial services.”
Although it is still early days and some may scoff that the transaction volumes flowing through these new providers are still small, it’s interesting to note that Open Banking has already brought changes to competition and choice.
One of the biggest new service providers for example is Yolt, owned by ING Bank, which has used Open Banking as a way of re-entering the UK market. And not all new service providers are small start-ups, they include HSBC, Citibank, Lloyds. Most big banks have been forced to consider how to compete in this new era of customer-centric, app-based services. It will still take more time for all consumers to embrace it, but Open Banking is already doing UK citizens a great favour.
Peter Hewlett, partner at A.T. Kearney
One year on, Open Banking has not been the customer banking revolution that we had hoped for. That said, there have been developments in three main areas – allowing customers to aggregate their accounts onto one platform, new payment methods via third-party providers, and improvements being made to customer journeys.
While new offerings have been introduced to the market over the past twelve months, Open Banking is still in its infancy and it remains to be seen whether consumers will embrace it, and whether it will encourage disruptive innovation within the traditionally digital-wary banking sector.
Jake Ranson, banking & financial institutions expert and CMO at Equifax UK
Open Banking was implemented a year ago to create a revolution in consumer finance. While the initiative is taking time to fully embed, it is without doubt having a profound impact and we expect it to play a central role in the banking sector in the years ahead. As more companies evolve the new technology into live customer journeys, consumers will begin to experience the full benefits of the proposition and demand for Open Banking will increase.
We envisage services going beyond banking data, for example encompassing social media information so consumers can manage their data in one place to gain easier access to tailored services. Open Banking also has the potential to play a key role when it comes to addressing problems such as persistent debt.
Open Banking data greatly enhances companies’ level of understanding of individuals’ financial circumstances, enabling them to better assess their suitability for lending products.
For those individuals with thin credit files, for instance, someone relatively new to the country or the self-employed, Open Banking data can be harnessed to get a more accurate view of their capacity to repay credit. The fusion of credit reference agency (CRA) data and granular transactional data is likely to build the best picture of affordability.
Open Banking is still in its infancy and, of course, many challenges still lie ahead, namely an educational deficit regarding how Open Banking can improve consumers’ financial lives, as well as understanding data’s positive predictive capabilities. It is equally important that reassurance is provided around the control and maintenance of individuals’ data, reiterating the information will only be used with their permission and they can revoke access at any time. It’s up to the banks and providers like ourselves to communicate the real life benefits the initiative can bring.
We expect 2019 to be a successful year for Open Banking as impetus, insight, awareness and product-based solutions grow.
Mark Chidley, Independent SME representative to the Open Banking Implementation Entity (OBIE)
Open Banking has a powerful role to play in bringing together members of its ecosystem to provide small businesses with the ability to manage their businesses in a more productive, efficient and profitable way – helping to mitigate persistent challenges such as late payments, low productivity and inefficient access to credit. The OBIE looks forward to continuing to bring the many actors in the ecosystem together in order to fully explore and realise the benefits that open banking can bring to small business owners and UK plc.
Arnold Koudijs, bank industry expert at Pegasystems
Yes, banks have been opening up, and have been providing API’s for access to financial data, enough so that it should suffice to comply with the PSD2 directives. However, these institutions are unsure how a full embarkation on PSD2 and even further into Open Banking would impact their business models, which has resulted in a lacklustre attempt at PSD2 implementation: no greater protection of consumers interests, no increase of competition levels, and no increase in efficiencies.
There is something needed to fuel the progress and to overcome the potential one-year itch we are feeling. It is the customer.
From the PSD2 regulations alone, there is no motivation for banks to move beyond the minimum requirements. On September 14 of 2019, banks should have the so-called technical and secure open standards (RTS, SCA and SCS) in place, of which the scope is not fully clear yet.
However, any baby-steps in these directions increase the capacity to improve customer experience and service. Open and secure standards will assist in developing financial aggregation solutions, using fast and easy onboarding, making relevant financing offers, better credit decisions, at a more competitive price.
The customer will benefit. If this benefit is shown at one place, the customer will demand that same improved experience elsewhere. This is how the PSD2 wheel of progress can be turned, and how the one-year itch might be relieved, albeit slowly. Will it become a seven-year itch?
Hans Tesselaar, Executive Director at BIAN
The past year has been a steep learning curve for Open Banking. And while challenges remain, I feel positively about the track we’re currently on.
It may seem to many that ‘Open Banking’ was little more than a buzzword in 2018, particularly as organisations – fintechs and banks – worked through the best means of implementation.
But I’d argue that Open Banking has done just that – opened banks up to the opportunities provided by third party providers (TPPs), who can provide bespoke solutions as digitisation continues to make banking increasingly complex. We’re already seeing API integrations that are making the consumer experience more frictionless, and encouraging banks to invest in technological solutions.
A big part of the puzzle is creating APIs that are ISO compliant. The two are inseparable, really, and as more and more people are concerned with privacy than ever before, it’s critical that the technology we rely on complies with regulatory standards.
We must remember that Open Banking was implemented to encourage competition among banking providers, and by creating APIs that are ISO compliant, BIAN is enabling banks to use technology that fits their existing systems and models. This allows them to migrate at their own pace while providing a seamless consumer experience. We’ve already made huge strides with the new regulations in place, and I’m confident that as banks continue to integrate, we’ll continue to see an increasingly open banking ecosystem.
Matt Cockayne, VP EMEA at Envestnet Yodlee
One year ago, Open Banking was implemented to considerably improve the way consumers bank, however several issues related to the PSD2 Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA) have arisen and highlighted the potential to do more harm than good, even threatening Open Banking as we know it.
While Open Banking was meant to provide an efficient, frictionless interface for consumers, we continue to see hindrances to the regulations that threaten to sabotage all progress.
A key example of this is the impending SCA regulations, which could ultimately lead to consumer frustration, app abandonment, and ultimately the unravelling of Open Banking. SCA regulations requiring users to log in anytime they want to check their accounts or make a transaction are likely to lead to one of two outcomes: consumers unifying their passwords, therefore increasing risk of fraud and data theft through insecurity; or growing so frustrated with their banking providers that customer satisfaction and trust is further eroded, and they move to consolidate favour of one provider. This would undermine the entire framework on which Open Banking is built.
If the past year has taught us anything, it’s this: the opportunity Open Banking presents is enormous, but if we’re not careful to proceed with caution, we could undo all our hard work.