“Buy the ticket, take the ride.” Hunter S. Thompson’s quote can easily be applied to open banking, which becomes mandatory in the UK starting in 2018. Banking innovation lead by the regulator! It’s reminiscent of the Monty Python line, “What have the Romans [i.e., the regulators] ever done for us?” The regulatory system gave the banking industry and its clients real-time payments; instant payments should be in 30 countries by 2020. The £1.2 billion made by the banks on overdraft fees prompted the UK regulators to act.
It’s a sea change for banking, especially those of us – the majority of us – who cannot afford a private banker. Open banking is private banking for the masses, delivered through technology that may or may not be the banks’ technology.
It’s revolutionary for an industry that’s about to see the barriers around accounts broken down. The bank’s role is changing from safekeeping money to permitting the owner of that money to manage it. The account owner is now in charge at the transactional level and can permit their money to be moved by others, rather than only by the account-holding bank. More importantly their account data can be shared with others to gather advice.
Going forward, a “financial Fitbit” style of banking could become common. People and corporations have a difficult time with cash. So many things to buy, so much choice, and so little time. An Apple Siri, Amazon Echo, or similar type of artificial intelligence (AI) can help with financial well being. Imagine seeing a prompt just before you buy something that says, “Do you really you need this?” or “Not another bet – when was the last time you won?” Based on the money coming into the account, AI can help get you through the month without going into overdraft.
The financial Fitbit app could assess the interest earned on deposits and the interest cost on loans. It could also calculate the fees and margins on cross-border payments and compare them to the market price, then suggest alternative providers if warranted. Once a decision has been made, AI bots can seamlessly and conveniently move money, as well as read the small print to check on terms and conditions, which very few of us do.
Open banking is a blessing in disguise, as it’s forced banks to confront the growing cyber-crime risk. They must provide a safe and secure environment to retain clients’ trust in this new world, which means anyone accessing an account has to provide bank-approved, modern, high security.
Open banking is giving people and corporations greater choice in savings, investments, and access to loans. For the multi-banked, an AI overlay on their current bank accounts can help avoid multi-overdrafts. This is especially true for corporations, where an overdraft can cost at least 20x any interest earned on any account surplus. For example, real-time cash pooling could eliminate these types of fees, as banks do not charge for intraday overdrafts.
It’s past time for banks to proactively respond in order to retain the customers who have stayed with them largely through inertia and the perceived barriers to change. To do so, banks must embrace technology and put it to use, just like bankers probably do at home.
To find out more about open banking, register for the SAP Financial Services Forum 4-5 July, London. View more information here.