Sarah Maber, Managing Consultant at World Wide Technology
Regulators around the world are starting to see the potential that Open Banking can bring to customers. Europe is currently leading the way, but other countries are starting to follow suit Australia will launch its initiative in February 2020, while Canada has been making positive noises (but little concrete progress). Other countries such as India, Japan, Singapore, and South Korea may not yet have any formal process, but local policy makers are making steps to open up the sharing of data.
The direction of travel is clear, and it’s towards open collaboration.
However, regulatory pressure, keen law makers and public demand are not enough. At this point open banking is more a potentiality than a reality. Incumbents and challengers will need to alter their approaches if they are to really grasp the opportunity. If Open Banking is to provide the true sea-change it is capable of, it needs to deliver more than the level of innovation we have witnessed so far.
Doing the minimum
While Europe and the UK may be seen as leading the way, if you look more closely at the results of the UK’s Open Banking Standard you may be underwhelmed. The new world hasn’t yet materialised, and regulation is nothing without a real buy-n from the banks themselves. Culture change is hard – but for Open Banking to be a real success all parties need to do more than the bare minimum of meeting regulatory standards.
The core of the problem is limited APIs. By adopting a ‘bare minimum’ approach in the creation of these APIs banks are denying us of the foundation for more transformative change.
Most technical compliance is undertaken as quickly as simply as possible, as institutions juggle these demands with a need to keep the lights on and business functioning. However, if they continue in this manner, the open opportunity will be missed. Viewing compliance as a cost-limiting exercise may be enough to beat the regulator but it will deprive consumers of proper breakthroughs. Changing to a more open culture and viewing developing a real API as an opportunity would be truly transformative.
Other countries have taken a different, more proactive approach to opening up APIs. For example, Singapore has published an API playbook to support data exchange between banks and fintechs. And in Japan, there’s strong promotion of collaboration through Open API regulation. Around the world, legislators are creating an environment for creativity. It’s now up to the institutions themselves to grasp it.
Should they reciprocate?
Banks have been critical of the lack of reciprocity in Open Banking regulations. Third parties and technology firms are under no obligation to return the favour and open up their data to the banks, this they would argue puts them at a competitive disadvantage.
But reciprocity can be powerful, and could help to kickstart innovation. In Australia, the concept of reciprocity is baked into its Consumer Data Right Act (CDR) as both data holders and data recipients would have to share data more openly. The rest of the world will be looking on to see how this is implemented and how successful it is. As Australia’s regulation is built around data rather than finance, there are plans to roll the initiative out to other industries such as utilities and telecommunications, encouraging the formation of ecosystems.
Meeting customer expectation
Underneath all the consternation about regulation and APIs is a simple aim – to serve customers better. Before pivoting to streaming, Netflix was a struggling DVD postal company. It spotted technology- riven opportunity to reach more customers and transformed itself to deliver on it. Open Banking has the potential to create its own version of
Netflix. Underpinned by proper APIs and cohesive working between banks and fintechs, it will serve customers and remove pain points in genuinely new ways – delivering something they didn’t necessarily know they wanted, but now can’t live without.
People used to base their banking choice on a measurable return: interest rates. This was a key point of differentiation. In the digital age, it’s the reality of modern finance that customers now look for different reasons to bank with a company. They are increasingly driven by ease of use and customer experience.
Lip-service collaboration is not just depriving consumers of proper breakthroughs – it also deprives the banks themselves of opportunities to deliver these new experiences. By doing the bare minimum they leave fintechs alone to build brand loyalty with a youthful, digitally native, mobile audience. If they engaged in true collaboration absorbed expertise from multiple sources, they would position themselves to deliver products that capture the wants and needs of modern consumers.
The roll out of Open Banking should create a new opportunity for partnerships. Companies need to recognise that customers now expect more from their data, and delivering on this will be a commercial benefit – not just a regulatory imperative