Open Banking was born out of the Open Banking Standards (OBS) report published in December 2015. The subsequent Open Banking remedy issued by the Competition and Markets Authority (CMA) in 2016 followed from their investigation into retail banking with the objective is to drive innovation and increase competition in Financial Services. By so doing it hopes to ensure greater transparency and fairness for customers.
Open Banking is a set of standards, brought by new technologies: Open Bank APIs. Open Banking API’s allow the secure sharing of current account information and transactional data. In addition, it enables the initiation of payments. The overarching aspiration of Open Banking is to level the playing field through offering greater choice, as it aspires for new products to be developed – and greater transparency on the benefit and value of these products. This, by its very nature, will bring greater benefit and much better outcomes.
Open Banking has made some huge strides, even now in its early days.
In March 2017, the first set of open data APIs were released that allowed current account product information to be shared. In July 2017, we saw the release of the read/write APIs specification for transactional data. In October FinTechs and other third parties could apply to the FCA for their Open Banking licence and enrol on to the Open Banking Directory – the repository that controls access to the Open Banking ecosystem. Last month we saw Open Banking ‘go live’ with the implementation of transactional APIs by three of the nine banks mandated to share data, and a timeline for the remainder to be live shortly.
The concept and reality of Open Banking is a ground-breaking initiative. As a result, the UK is leading the way on implementing this systemic transformation.
So, what is Open Banking going to do for the customer? We believe there are four clear benefits:
- Customer choice
- Open Banking encourages new organisations to enter the market. This will broaden the choice of products that are available and allow for new innovations to come to the market from new entrants. This opening of the market will see the desired competitive marketplace become a reality.
- Open Banking will help demystify and democratise financial services. How? It should empower customers to better understand their finances and facilitate improved financial advice. This is important particularly to those customers who struggle to manage their finances, or who aren’t aware of the best offers or services for them. In addition, it will help those who are currently struggling to access mainstream credit.
- The sharing of product information, allied to an individual’s income and expenditure, will enable products and services to be personalised to the needs of an individual like never before. It will facilitate a more accurate product comparison and enriched eligibility checks, fairer and more responsible lending and personalise financial management holistically – if the insight is used to its full potential.
- Customers will have control over how their data is used, through consent. Businesses, lenders in particular, will therefore need to ensure that not only is the data safe and secure, but respect the privacy of individuals and work collaboratively with consumers to build trust and demonstrate the value of sharing their transactional data.
See our infographics for more detail on how Open Banking is revolutionising banking and financial services, or how it’s changing lending as we know it.
From a lender’s perspective, access to more information means you have more insight to inform your affordability checks. Understanding a customer’s financial well-being means you can act proactively to prevent them from falling into debt or missing a credit repayment, for example. This provides an opportunity to protect the most vulnerable, reduce levels of personal debt and prevent insolvency. Used correctly, Open Banking provides the opportunity to create more collaborative relationship between lenders and consumers where everyone benefits as a result.
When we spoke with Miles, the Head of Customer Engagement at the Open Banking Implementation Entity, he explained to us how the advent of Open Banking will bring not only more transparency, but it should also engender more trust. And trust is something everyone needs to work at moving forwards.
Brand and trust is integral to the growth and success of Open Banking. Organisations that provide transparency and openness in their relationship with consumers are those that will benefit. Miles also told us how the Open Banking initiative is keen to see alternatives to the existing overdraft market develop, as well as, Personal Financial Management, and tools that help people manage their everyday finances better. All of which is very important.
We expect that Open Banking will be a stepping stone towards far greater innovation. At Experian, we have been focussing on developments around Open Banking for some time. As society begins to adapt and become comfortable with Open Data, we believe people will share their data as readily as they order taxis from their mobile, or pay for groceries and retail goods by a simple tap of a watch – but before we get to this point we need to take consumers on a journey. The research clearly shows how there are significant groups of sceptical people, including those who currently will go to great lengths to avoid sharing their data.
The future is built on consumers controlling their data, and therefore on consent. Organisations must build services that use the data to create value to initiate and encourage consent from consumers to share this data.
The UK is at the forefront of a global shift in data sharing. And, like the Open Banking initiative does, we believe this is an important piece of national infrastructure. Having a dynamic economy and particularly a dynamic Financial Services sector, is going to be a crucial asset as we navigate our way through social and economic changes anticipated in the years ahead.
Through our research [commissioned through Forrester], we can see how most, if not all (97%), of businesses believe traditional business models will disappear in the next five years – to be replaced by new, innovative, digital models. It’s important to note that the same survey, conducted in 2016, saw only 20% of organisations interviewed believe this to be the case.
We’re at a watershed moment where organisations are realising the opportunities that change brings – rather than approaching with pessimism, but optimism.
From our discussions, it’s evident how many are keen to find ways in which they can adopt more agile, futureproof strategies that can embrace change and deliver better outcomes for customers as a result.
Above all of this is about placing the customer first. To do this, we need to ensure that Financial Services is fit for purpose in the 21st century digital world. The next twelve months will be exciting as we embrace this evolution and move firmly into a revolution that is purposely modelled to be futureproof.
Download our guide to building an architecture suitable for Open Banking, or for more background information you may find our white paper: a new era of data sharing, or delivering value in a digital age, of interest.