As part of a drive to standardise and promote the advancement of innovative online and mobile payments, in October 2015, the European Parliament unveiled PSD2, a large-scale update of the Payment Services Directive. At the heart of PSD2 was the concept of Open Banking.
In the UK, Open Banking was introduced in January of 2018 with the CMA ruling that the nine-biggest UK banks – HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske Bank, Lloyds and Nationwide – must open up their data reserves to licensed start-ups so that they might provide a range of inventive and versatile consumer-focused services.
It seemed like the beginning of a financial revolution, but hype and reality have a habit of not seeing eye-to-eye…
A rocky start...perhaps.
For those of us who deal with finance regularly, and especially those of us work within financial sectors, be it FinTech, accountancy, treasuries or whatever, Open Banking heralded a new dawn in financial management and processing and was duly met with much enthusiasm.
The problem has been that the public have not shared this enthusiasm. In fact, multiple studies have shown that most consumers don’t even know what Open Banking is, and those that do are dubious about the requirement for sensitive financial data to be shared. Hardly surprising with some of the stories in recent years involving major companies suffering serious data breaches.
Adding to the sluggish uptake of Open Banking initiatives has been the inactivity of the big banks themselves. In order to open up their data inventories securely and provide platforms and interfaces for start-ups to access their data, substantial time and capital is required. With consumer uptake lagging behind expectation, there has been a notable reticence from the big banks to invest in either.
Success? It depends who you ask.
At the time of writing, there are over 140 FCA-regulated providers enrolled in Open Banking offering an assortment of services from finance management to affordability checks and verification, and people areusing them.
In August, multinational consumer credit reporting company, Experian, revealed that their Open Data Platform had supported more than 20 million of the API requests made in April. According to the Open Banking Implementation Entity (OBIE), this represented 40% of the 49.1 million made in the UK overall. Moreover, the number of API requests made in the UK has more than doubled since February.
Facilitating these promising figures has been signs of a gradual change in attitude from the big banks. Initial reticence was (and, to some degree, continues to be) fuelled by an apparent lack of consumer appetite for Open Banking and perceived lack of advantage for the big banks, however, there is evidence that the banks are beginning to take advantage of the technology. It is being used, to various degrees, to fortify customer relationships and retention by improving the way they help their customers manage finances, instead of simply facilitating transactions.
How can the next 20 months be ramped up?
The excitement surrounding Open Banking has tended, perhaps understandably, to focus on the technology itself. The problem with this, is that customers prefer to hear about the benefits of technology, rather than the technology itself. They also want the benefits to be more compelling the more data they are asked to share.
For example, consumers believing themselves to be inadequately served by their banks may be more likely to share their data with a third party if they could acquire a service such as a more exact credit score. Start-ups could better support these consumers by presenting them with a more exhaustive and accurate portrayal of their financial situation, including current accounts, credit accounts, savings and debt. This aggregation of data builds more accurate and transparent credit scores, something which has traditionally been shrouded in misunderstanding as to the contributing factors.
Of course, this is one example amongst many. For Open Banking to fully realise its potential, the industry has much work to do build trust in the concept and develop understanding. It is through such a campaign of targeted education, delivered through real-life examples, that mass adoption will be expedited.