Open Banking: The Fuzzy Period

John Bertrand

Like Captain Ahab at the start of his voyage, banks are in a similar fuzzy period. They know Open Banking is coming with new rules to comply with, but they don’t know what should they do, if anything, beyond compliance. The issue is this: If banks’ customers respond to the new, open world and go digital with new services and products, the money they spend will not be with the banks. But if customers do not take to Open Banking, the banks who exert the minimum effort will gain the most, while those who believe Open Banking is a game changer will lose. Like any voyage, there is a sense of adventure.

Open Banking enables every bank customer to permit third-party providers (TPP) to access their financial and personal bank data. That is a lot of data coming onto the market, but probably the most important piece is the money coming into each person’s bank account.  For the first time, the actual money that can be invested, saved, or spent is knowable. Gone will be the need for credit reports that estimate each customer’s creditworthiness.

It’s affordable, high-powered technology that is allowing this tsunami of confidential data on consumers and business to be analyzed on a one-to-one basis.  This will show where the money has gone and where it could go by predicting what will happen in the future. In addition, this technology can power Amazon-like suggestions of alternative financial activities that can be offered to banks’ customers.

The customers can be classified into two main areas: consumers and corporates. The feeling is corporates will be a major target for Open Banking. Banks have worked hard to provide digital banking to consumers, as they were the first sector to embrace mobile technology. Digital business-to-business transformation, which accounts for 81% of international payments, lags behind retail.

Banks’ earlier, proprietary versions of online corporate banking services were installed by most companies. Most large corporations are multi-banked, so this multitude of proprietary systems has produced a poor experience for finance departments. Because each bank has a different system with its own set of procedures, treasurers have been trapped by these legacy online systems. Open Banking, in contrast, promises a world where corporations can assess many banks through one, customer-intuitive, intelligent gateway.

Consumers are less likely to use multiple banks, but they do have an array of financial apps to choose from. With the arrival of Open Banking, these apps can include personal historic transactions. From this information, TPPs can tailor financial offerings designed around the individual or even make payments on the account holder’s behalf. Consumers will have one-stop banking, if they like, with the strong probability that payments will be instant. (Annual growth of the United Kingdom’s faster payments is 105% CAGR, vs. three percent for traditional payments).

Banks can also offer customers a wide choice of apps, including their own. They can offer aggregation services and price such services to benefit the customer, provider, and bank. The goal of offering self-service, multi-banking through Open Banking is generating income and cost savings.

The opportunities are there, as fuzzy as they may be today. Just like Captain Ahab, banks need to find these opportunities first to protect their existing customer base.

To find out more about Open Banking, register for the SAP Financial Services Forum 4-5 July in London.