What has Open Banking done to financial services?

It cost a lot of money, upset a lot of bankers, and has hardly inspired a queue of users begging for more. Open Banking looked to throw the banking industry head first into the digital age, forcing the banks to allow API access for third parties to their data - but it’s not been with a bang, it’s been with a whisper.

We might have seen plenty of new apps, but how much are these helping people in their day-to-day lives? Beyond the FinTechs, has it had any impact? The answer to this is yes, but maybe not in the way we expected… At least not in the way that your mates up the pub will have seen, not yet.

So 18 months on, let’s look at what Open Banking has done for financial services and what Open Banking has done to financial services.

The good

The FCA, through Open Banking, set out to open up the banking industry in the UK to a new wave of innovation. By mandating the banks set up APIs that adhere to defined standards, the hope was new market entrants would be able to access the data of consumers which wasn’t previously attainable and use this to build innovative services that the banks just weren’t doing.

What we’ve seen in the 18 months since services went live is a series of new entrants utilise the data in a way that the banks weren’t. This is exactly what was intended and the number of new consumer propositions has been encouraging.

From new chatbots like Plum, aggregators like Yolt and lenders like Zopa Open Banking has opened the door to a wave of new services that offer users new ways to interact with their money. We’ve also seen a series of new FinTechs like Bud, TrueLayer and Yapily offer B2B propositions that will support innovation in the future and ease the way companies can access data from the banks.

Whilst those new apps aren’t necessarily setting the world alight with the number of users they are getting, it is clearly kick starting the banks into responding. We’ve since seen banks try to copy some of the features that have been introduced by new entrants. Card freezing is probably the best example of this. Monzo and Revolut were the first to introduce this, but we’ve since seen Lloyds, Barclays, Nationwide etc follow suit.

It’s also changed how the incumbent banks are it doing too. Now banks are realising that they cannot work in isolation and keep up with the rate of change going on in FinTech. They simply can’t churn out products and propositions at the same pace.

As a result, the banks have now started to open up to working with the FinTechs. For the traditional incumbents, this represents a significant change of approach, both in terms of mindset and technology needed. The result can ultimately only be good for the consumer in the long term as we will surely see more new innovations introduced to the scale of customers that the incumbent banks have. Look at the investment being made now into API strategies and developer portals, not just to meet regulatory MVPs but to encourage collaboration. This is good news for the industry and the end consumer.

Bud, previously mentioned, are one of the most notable examples. Bud are working with HSBC to not just meet their Open Banking obligations, but go a step further and start to take advantage of the opportunities themselves. We can also see M&S bank collaborate with Equifax and AccountScore as part of their mortgage offerings. There are numerous other examples that indicate things are starting to change.

The bad

Sure there’s some new apps, but really how much is it helping people right now? Adoption has been a significant issue, and many have described the launch as a damp squib. The number of consumers using new services developed as a result of Open Banking has been disappointing. There’s a few reasons for this that have been talked about.

1. Failing to meet real user needs – very few of the new propositions that have been introduced to the market have managed to solve genuine issues for people. It’s true that the first things to be developed have been the most basic and it’s expected that more valuable services will come over time. Getting over the gimmick features into some of the complex challenges that people face with their finances will be the real key.
2. Poor communication and planning around the roll-out — there have been questions over the amount of attention given to the way Open Banking was introduced to the general public and the lack of money spent communicating forthcoming changes. Not only do we still see banks calling it Open Banking (who outside of financial services understands this?), but we are still faced with a huge lack of awareness. Compare the communication with way chip and pin was introduced in the UK and you’ll see a world of difference.
3. Resistance from the banks – before we start bashing the banks, remember how much money they have had to invest into Open Banking and how they aren’t really incentivised to introduce it. It’s true that the banks have dragged their feet, evidenced by the need to enforce specific user experience guidelines to make sure the banks provide good customer journeys, but this shouldn’t have been a surprise. I noted earlier how some banks still call the journey of aggregation ‘Open Banking’, how does this inform a user what’s in it for them and guide them through the process? Answer: it doesn’t. Until we see all players begin to embrace the change further this is likely to remain a slow burner.

These are all factors that play into the lack of adoption, but its important to remember that these things a take time. Look at contactless and how long that took to get going. This legislation is looking to get consumers sharing data about some of their most personal details – their finances – this was never going to happen overnight.

It will be the applications that are still in development that will prove the value of Open Banking. If the use cases being worked on today help users get higher value jobs done then this will go some way to ensuring Open Banking is a success. However all three of the points above need to be addressed to some extent to get adoption rates to a level that justifies the investment.

So what?

Beyond the disappointing start, the broader implications for the financial services industry is the emergence of a whole new business model.

We talked earlier about a new wave of collaboration that has been kick started by Open Banking, and this is resulting in banks shifting towards more open platform architectures. With more open architectures we see the incumbents adopt a business model that invites collaborators in to deliver new value more quickly — this business model will enable better outcomes for consumers in the future.

In this light, it could be argued that Open Banking has been the jump start need to begin the platformification of banking. As evidenced by other industries, this is the true enabler for digitisation and the long-term benefits for users here are hard to ignore.

So if the main thing this has done is given Fintechs a leg up to start collaborating with the incumbents who have now started thinking differently then this a good start. But it is just a start. To truly realise the potential of Open Data in financial services we have to look at what’s next and how we move beyond just banking.

We should look to Open Wealth and Open Finance as the key vehicles to empower consumers and use the lessons from Open Banking to ensure a digital financial services industry works for everyone.