By Richard Mathias, Senior Technology Architect at LiveArea
Despite current uncertainty, the financial services sector is experiencing transformative change year on year. Innovation in banking has traditionally been a cumbersome process, but these new players have changed how things are done, applying lessons learnt in other industries to keep established players on their toes.
Among these innovators is Revolut. The company had a busy start to the year, tripling its valuation to £4.2bn, making it the most valuable FinTech start-up in the UK. But perhaps more significant was the company’s move into open banking, news which went somewhat unnoticed.
The implications of this announcement cannot be overstated, having the potential not just to transform personal finance, but the economy as a whole.
Personal finance meets convenience
To begin, the move into open banking makes Revolut the first provider to be authorised as an Account Information Service Provider (AISP), meaning it can now securely use UK banks’ APIs (Application Programme Interface).
In layman’s terms, it means they can now act as a single, unified interface for all of an individual’s or business’s financial information. Playing into rising demands for convenience, it makes it possible to connect external UK bank accounts to Revolut, giving consumers and businesses a 360 view of their balances, transactions and everything related to banking within a single application.
The implications cannot be overstated. One-in-four UK consumers have one or more current accounts – when it had previously been a pain to manage multiple accounts across different banks, account types and locations, these pain-points are effectively eliminated. Open banking will encourage consumers to be more agnostic with credit cards and savings accounts. It could well spell the end of bank loyalty.
Opening up new possibilities
Revolut’s announcement made it a pioneer even among challenger banks. Now all eyes are watching to see if the system of open applications works effectively. And it’s easy to see why – theoretically, it will open the door for additional functions of AISP for other sectors besides banking.
In retail, we could see it applied to functions that have difficult relationships with acquirers and credit providers. For example, we could see the emergence of a single refund/credit company, delivery, or inventory buying application which looks at the entire market.
Here, it’s the digitally native challenger brands, similar to Revolut who are best placed to take advantage of these new functionalities. In contrast to high street retailers, these companies have fewer obstacles to innovation, enabling them to be much more agile when implementing new initiatives. Expect companies, like Asos, Boohoo and of course Amazon, to start testing the boundaries of what’s possible.
While the announcement could be a kingmaker, it does come with risks. With APIs opened up to third parties, open banking makes organisations vulnerable to potential cyber adversaries as they’re no longer able to hide critical applications behind firewalls – so what would happen if they were to suffer a data breach?
The banking industry typically leads the way for security, but a huge amount of responsibility falls squarely on Revolut’s shoulders. After all, any stumble or misstep could result in severe financial and reputational fallout and halt open banking in its tracts. This means that API security is more critical than ever for the company to mitigate any potential threats.
All eyes watching
Revolut took a gamble by moving into open banking. With 2019 going down as the worst year on record for breaches resulting in exposed data, security is of the utmost importance.
Revolut’s announcement makes it clear that the retail banking model as we know it is fading away. Open banking provides consumers with long sought-after convenience and flexibility, giving them easy access to multiple bank accounts under one interface and eliminating the traditional pain-points. Whether or not they make it a success is difficult to say, but all eyes are watching to see if the project yields the hoped-for results.
HOW IDENTITY IS SECURELY UNLOCKING THE SME BANKING MARKET
By Mike Kiser, senior identity strategist at SailPoint
Have an identification card in your wallet? With a selfie and a few short minutes, you could have access to a business bank account.
Small and medium enterprises (SMEs) have long been the fuel that drives the global economy, representing around 90% of businesses and more than 50% of employment worldwide. Over the last few years, a range of financial services and platforms have arisen over the last few years to support the banking needs of these organisations. They are often digital natives and are innovating to meet the needs of their clientele.
This innovation provides great ease-of-use and rapid access to credit but also demands a careful consideration of their assumed security approach. The aforementioned scanning of an identity and a quick photo to establish a bank account demonstrates the rising importance of identity in both the consumer and enterprise arenas.
The blurring of the lines between personal and corporate identities (in this case, an individual acting on behalf of a small business) is still in its infancy. Combined with the ubiquity of mobile devices, individuals will tire of maintaining different accounts, different personas, different lives for each activity. Usability will demand that identity be reusable, portable, and secure.
This has massive implications for enterprises and the financial institutions that serve them if they seek to prevent cyber-attacks; thankfully, the same element that presents the security challenge also offers the solution: identity.
A New Vantagepoint
Just as individuals desire a single identity to unify their interaction with disparate parts of the world, organisations can use identity to grant them a single, holistic view of an individual (attributes, access, and behaviour) rather than seeing only a fragment at a time. This is particularly important for these new financial institutions—much of their technology stack is cloud-based, which often leads to splintered security approaches. An identity-based approach must be cloud-aware, and able to distil these complex environments into simple and easily governed infrastructure.
This collectivisation also allows security to use identities in the aggregate: to see what groups of similar individuals exist, what access these groups have, and what their usage of this access typically is. All of this contributes to the establishment of what normal is, whether it’s attributes, access, or behaviour. Once the “normal” is established, then the outliers—the potential threats—may be quickly triaged.
Adaptability: The New Imperative
The recent wave of change has demonstrated that financial institutions and organisations must be ready to adapt quickly to shifts in the environment. Portions of IT staff and services have been furloughed, and adjustments to new realities are essential. An identity approach that learns from the evolution of changes in the previously established areas of normality can grant enterprises the ability to see what is coming next and invest appropriately. Much like a view from an elevated position grants the ability to see beyond the normal horizon, basing a security strategy on identity makes it inherently adaptable.
Identity: Innovation and Security Intertwined
Identity, then, is a foundational consideration for financial institutions seeking to provide services for the perennially important small and medium enterprise sector. By eradicating barriers to entry that have historically kept financial organisations and enterprises apart, it is driving rapid adoption and a growing market for innovative banking. At the same time, it shows the path forward to securing those new services in a pre-emptive, adaptable way.
Now if you’ll pardon me, I must go open a bank account for my next start-up—from my mobile.
OPEN BANKING: ARE CONSUMERS KEEPING AN OPEN MIND?
Last September, the European Union’s regulatory requirement for banks to open up their payment accounts via application programming interfaces (APIs) came into effect. Since then, open banking has taken centre stage within European retail banking and payments. In this blog, Elina Mattila, Executive Director at Mobey Forum, shares insight into how emerging consumer attitudes may impact open banking services in the coming months.
It has been over six months since the revised Payment Services Directive (PSD2) came into full effect and with it, required banks to allow third party providers to access payment initiation and account information. While the regulation was designed to facilitate open banking, the market demand was uncertain. Would we, as consumers, choose to embrace the new services enabled by open banking? And if so, under which conditions?
To understand consumer attitudes, Mobey Forum and Aite Group partnered on a pan-European study to determine the appetite for open banking services amongst 1000 consumers in Finland, France, Germany, Spain, and the United Kingdom. The study, launched in November 2019, revealed many important consumer trends and attitudes, including key priorities and potential barriers for adoption.
Consumer appetite for change
The consumer benefits of open banking are largely perceived to be compelling, yet this counts for little if the providers of those services are not deemed trustworthy. This is an observation reflected in the study, which highlighted consumer confidence in service providers as critical to open banking adoption. People want clear visibility of who is managing their finances, and the overwhelming majority (88%) would prefer their primary source of open banking services to be their main bank, as opposed to other banks or third-party providers (TPPs).
Consumers also indicated high levels of trust in their current bank of choice, reflected by 77% preferring to use a financial product comparison service offered by their main bank. By enabling customers to compare the pricing and conditions of a range of financial products on the market, they feel more comfortable that banks have their best interests at heart. This is a welcome trend, and one which should be celebrated in the aftermath of the 2008 financial crisis. For the banking industry to have rebuilt trust levels in this way bodes well for consumer adoption of future innovations.
With a trusted provider, one third of consumers were then either ‘very interested’ or ‘extremely interested’ in integrating open banking services into their financial routine. This applied to specific use cases: account information services (32%), pay by bank (33%), purchase financing (25%), product comparison (35%) and identity check services (35%). Unsurprisingly, consumer willingness to adopt these services relies heavily on providers continuing to prove that they can be trustworthy stewards of personal data.
For those unwilling to adopt open banking, concerns largely focused on reservations around security and privacy. As open banking becomes more sophisticated, it will be interesting to analyse the nuances around how consumers engage with third parties. Established brands are perhaps more likely to be trusted by consumers than lesser-known online retailers. For this reason, consumers may hesitate to engage newer companies than brands they are already familiar with. In an industry as varied as finance, this creates additional intrigue in the ongoing battle for market share between the newer ‘challenger’ banks and the older, more established European banks.
Consumers might, however, be willing to deprioritise trust and, instead, favour convenience and usability. When questioned over their willingness to adopt a new payment method, for example, 91% of respondents indicated that they could be tempted to switch either by financial incentives or the promise of greater convenience.
The path forward
While open banking is still in the relatively early stages of development, it has made significant progress in a very short period of time. Not only is it allowing consumers to share financial data with authorised providers as they wish, but it is set to spark more competition and innovation within the market.
From a business perspective, open banking is expected to create lucrative new revenue streams, particularly for companies which are able to innovate quickly and react to consumer demand. It is prompting consumers to reconsider how they manage their finances and – most excitingly – it’s not even close to reaching its full potential. It should bring a whole new era of service partnerships between banks and TPPs, which will enable a new generation of innovative financial services.
For the industry to truly fulfil its potential, it is vital that stakeholders are able to explore new business models, innovations and changing customer expectations for open banking in a commercially neutral environment. Mobey Forum’s open banking expert group provides exactly this, and we look forward to supporting our members as they shape the future of digital financial services.
Where to find out more
The opportunity for open banking is explored in more detail in a report by Mobey Forum and Aite Group, entitled Open Banking: Open Minds? Consumer Appetites for New Banking Services. It provides banks and other financial services stakeholders with a market view on consumer appetites toward new open banking services and explores the possible roadblocks to consumer adoption. It is also discussed in a podcast featuring key representatives from Interac, Erste Group Bank and Strands Finance.
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