BankingOpen BankingOpen banking: the unfinished revolution

Open banking: the unfinished revolution

The consumer banking market, normally ruled by a few corporate giants, has recently become more open, with new competitors entering the space.

The world of consumer banking is changing. A market that used to be ruled by a few corporate giants has recently become more open, with new competitors entering the space. Not only are challenger banks such as Monzo and Starling entering the market – but also some of the most innovative moves are coming from those who provide specialized financial services direct to consumers.

Whether this is Moneybox offering customers the ability to profit from micro-investments or Yolt offering customers detailed breakdowns of their spending – these services are far from commonplace among the traditional banks.

Banking is being led into the 21st century not by large corporate entities, but by challenger banks and third-party providers that are truly putting the consumer at the heart of their operations. And as such we are seeing a gradual change in consumer attitudes towards banking. Many people have multiple bank accounts and the number of account providers is growing. Loyalty is no longer assured – a bank is no longer for life.

Recent regulation

Although the open banking revolution sees increased competition for the traditional high street banks, it also relies on their willingness to allow customers to safely and securely share their financial data with third parties. This was previously undertaken by a process of ‘screen-scraping’ which would mean giving the likes of Yolt or Chip the login details for your online bank.

However, recently, the Competition and Markets Authority (CMA) has forced high street banks to allow customers to grant ‘read-only’ access to these third parties: essentially allowing customers to provide them with details of their bank statements and little more.

Mandated by both the CMA and EU Directive (in the form of PSD2), the largest providers of current accounts are now forced to allow this sharing of data. The rationale behind this move was to both increase levels of competition within the banking market as well as to promote a common European legal framework for the making of payments.

Consumer confidence

The potential for innovation here is huge. In creating a mechanism that allows customers to safely share their financial records with these companies, the promises of these challenger banks are being underwritten by their own current account providers. Although most open banking companies are regulated by the FCA, this added involvement from customers’ traditional banks provides a crucial extra layer of reassurance for customers.

There is, however, one problem.

Very few people have even heard of open banking. Independent research undertaken by the Crealogix Group has demonstrated that over 85% of consumers have either never heard of, or are unsure what the open banking initiative is and how it will affect them.

On top of the fact that less than one-in-six (14.3%) are aware of the open banking initiative, less than a quarter of this figure were people who had heard about it directly from their own bank or building society.

A corporate hegemony

The big retail banks have failed to educate consumers on the benefits and the relative absence of risks involved with open banking. Due to this lack of information, there is a real concern among almost half (45.5%) of those surveyed about the security aspects of open banking – such as personal identity threats, data breaches and unwarranted sharing of data with third-party businesses.

The banks are mandated to make information on the subject readily available, however, the survey illustrates that this not been as effective as had been hoped. As such customers lack the key assurances that their data is safe with the likes of Chip or MoneyBox.

This begs the question as to why banks have been so slow to act? Many are seeking to protect their market share given that they are all developing their own versions of these apps – with HSBC looking to be the first to launch in mid-April. This is a move which they hope will head off the challenges posed by these banks. However, they fail to acknowledge that there is a certain level of innovation that occurs within a start-up that is simply not possible in a large corporate entity – hence why they are stuck playing catch-up.

Taking banking into the 21st century

 The potential for open banking to change the way in which we bank is huge. Possibly the largest obstacle to the open banking revolution is one of uptake – it requires enough people to forsake the traditional banks and try these new players. And this is where information and education are key.

When we look at consumers, we can see how great the potential for change is. Consumers will have a better idea of where their money is being spent and the best methods of saving. And if used properly, these apps could save consumers significant sums of money. Consumers will be given the controls to properly take control of their finances. They simply just need to be made aware of what is available to them.


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