Jul 2018 | Credit Decisions | Data Assessment
By Posted by Rob Haslingden

Outside of banking, many people’s knowledge of ‘Open Banking’ is quite sparse. I would define Open Banking as two things:

  •  The use of APIs to share bank statement data: everything a consumer or small business owner sees in their bank account. This can be up to 12 months of data for a consumer, or 3 years of transactions for a SME
  • The use of APIs to allow payments to be made. When you currently buy something online, a retailer will frequently defer the payment to a payment provider. Under Open Banking a customer can choose to allow an organisation to take a payment directly from their bank account. This gives an opportunity for other payment service providers to challenge the dominance of Paypal or Mastercard

Experian is investing heavily in Open Banking, and when you think about us not just as a credit-referencing company, but also as a data company you can understand why. Open Banking provides access to new data that can generate an awful lot of insight. Which in turn can lead to more accurate decisions, better informed predictions and greater personalisation.

Anyone who thinks Open Banking is going to be another one of those failed initiatives, should reconsider. Open Banking was launched in January this year with the release of APIs. The product APIs came out in March. The nine biggest banks are mandated to share data, and that will account for 90% of all accounts in the UK market. These APIs are being implemented now. Payment-initiation APIs will follow shortly.

The operational infrastructure is being built, the governance process is in place and data has already started to flow.

Open Banking is going to happen and we’re already seeing applications being developed to share data, particularly in financial services. At Experian, we have the technology available to enable data aggregation and exchange and we are building and we’re extending this capability with a variety of services that instil confidence and trust amongst consumers to share data.

Beyond Open Banking

A whole new world of open data will emerge over the next few years, and Open Banking is just one facet of that. This is why we should focus on the term ‘open data’ as opposed to Open Banking. Bank accounts are just the beginning; over the next 18 months we’ll start to see transactional data from other payment accounts shared including credit cards. Savings will follow suit.

Pensions is another interesting area. Over the course of the last 18 months, the government has been keen to find ways to help consumers understand more about their pensions. Experian developed a prototype to enable the sharing and consolidation of pensions data. This can be provided to a consumer in a dashboard that illustrates the extent of an individual’s pension coverage collected through their working lives.

In Utilities, Ofgem is already looking at ways it could parallel the work being done in Open Banking to enable the sharing of energy consumption data with a Third Party – probably a price comparison service – that allows tariffs to be compared more accurately by combining bank transaction data with energy consumption.

Telematics services that capture your driving behaviour and use this to inform your car insurance premium are already available and a proposal exists to centralise this information into a data-sharing hub for use by insurers.

This open data environment presents an opportunity to reduce costs and make more informed business decisions. It also plays into the discussion around digitising the customer journey and reducing friction. It takes out some of the legwork of things like filling in forms or the physical sharing of documents and information. The opportunities, if understood, are transformational.

The opportunity for insurers

Open data helps you improve customer service because it allows you to make decisions quicker. It also makes experience easier and more convenient for the customer. How? Because when understood, the data can be of huge benefit to better understand a customer – their behaviour, consumption and lifestyle. This is important because it allows you to generate insight that can be used and personalised in your dialogue with a customer. It means you can create services that are tailored and underwritten by the information shared between the customer and you. This allows you to have a better understanding of the risk associated with each individual and deliver value that is personalised to a specific customer.

There are several reasons why we think this presents an opportunity for insurers. Firstly, insurers have a great track record for investing in analytical resource. Through your investment in people and analytics, you have the infrastructure needed to understand data at scale. This data, if understood, can add more insight to ensure you have more meaningful and informed discussions with customers.

One of the challenges open data presents is the requirement to share the data in real time. Insurers already do this in the process of providing a quote, it would be a natural progression to use this data, perhaps within quotes or at the point of sale to make a better assessment of risk.

Telematics is a good example where insurers have already created a value proposition that encourages consumers to share data to inform more personalised premiums. The industry has an established data-sharing ecosystem in a highly competitive, price driven market. Its suggested that the data being surfaced through open data could be used to improve and personalise pricing.

Another use case for insurers could be to optimise claims. Connecting other data sources with account transaction information to create new sets of data could ensure the right amount of money is paid to consumers and provide insights on potential fraudulent claims.

If you’re aware of what’s going on with Open Banking, I would urge you to find out more and understand what opportunities it brings. Go out and test if customers will share data and find out how it can be used to inform risk decisions and create value. And if you need help bringing this to market, or to scope of the opportunity, we’d be very happy to collaborate with you.

If you are interested in exploring how you incorporate this new data into your organisation, we would be keen to come and talk to you. The infrastructure is now operational. We have plugged in the open-banking APIs and we are starting to develop use cases. With our FCA Open Banking licence we can work in partnership and help you explore how Open Banking can work for your business.