Is 2019 the year Open Banking comes to life?

Steven Bisoffi, Huntswood: how to ensure the Open Banking success

On the 13 January 2019, the Open Banking initiative celebrated its first‐year anniversary. Despite a relatively low uptake and little recognition of the scheme amongst consumers, experts across the industry are predicting 2019 to be the year the initiative truly comes to life.

Enthusiasts have pointed to Open Banking as a revolution in banking, bringing greater competition within markets and encouraging switching. But a technological and regulatory shake-up of this scale was always going to take time to come into its own. A certain amount of patience is needed from providers, as customer habits will need to sufficiently shift in a way that enables Open Banking and its benefits to be fully appreciated.

Responding to the regulatory landscape

Data sharing

Aside from the low customer awareness of Open Banking, sceptics have voiced concerns over how secure data will be if shared between providers. Under the Second Payment Service Directive (PSD2) – the over‐arching regulation that underpins the Open Banking scheme – customers can authorise third party providers (TPPs) to access their banking details through open APIs.

Security of data has always been a priority in banking, but the sharing of previously private data with non‐bank third parties has led to more scrutiny, increasing the importance of reputation and trust.

Fraud

With this in mind, PSD2 requires suppliers to provide Strong Customer Authentication (that is, key personal information that customers must use to log in and firms can use to identify fraudulent payments and scams). However, this remains a huge technological challenge for providers, as it requires them to revisit and evaluate the strategic and operational processes that ensure customer data remains protected when it is shared with TPPs.

Firms need to ensure that their customers are sufficiently protected against fraud, while also making sure they closely align to the CMA’s Open Banking regulatory blueprint with regards to APIs.

What’s in it for challengers and TPPs?

To date, challengers have thrived on providing app‐based, customer‐centric alternatives to the traditional banks. As such, Open Banking should be seen as a key opportunity to demonstrate firms continued penchant for innovation.

It also provides a huge opportunity for new TPPs who are able to enter the market off the back of these regulatory changes. For example, Yolt became the first third party provider to successfully connect all CMA9 banks in September 2018, firmly placing them in thick of the Open Banking initiative. Once additional TPPs are available for customers, and more banks are successfully operating under the initiative, we will no doubt see an up‐tick in consumers awareness and subsequent use of the app-based scheme.

How can Open Banking become a success?

Customers are, and should remain, at the centre of Open Banking, as its central proposition is to allow them greater access to financial decision making and payments services.

Customer education and communication

Providers need to question their internal processes and operations to ensure that enough is being done to inform the customer of how they share their information and what it is used for. It is important to note that Open Banking providers are not free from the requirements stipulated in the EU GDPR.

Appropriate and timely communication about the services offered and how the organisation will work with others to provide solutions to their customers is fundamental. This communication should detail proactive and preventative security measures being taken to mitigate the risk of fraud while delivering improved services.

Larger banks and building societies, in particular, will have to get used to successfully navigating the open environment alongside other non‐Open Banking services and products on offer, whilst efficiently communicating the changes they make to their customers.

These financial institutions need to think and plan from a customer journey perspective. Open Banking will be new to them, so their providers need to ensure that the expected influx in queries and questions can be answered swiftly and confidently by customer service assistants. Training current staff and specialists will be a huge challenge, but one banks need to overcome in order to succeed.

Leveraging the data collected by TPPs or investing in innovative data analytics capabilities will provide useful insights into the customer journey, including just what they expect from their providers. Banks can then use this information to encourage loyalty through increasingly personalised banking experiences.

A new era

The Open Banking initiative will revolutionise the relationship between customers and providers. But banks need to be prepared for a shift in regulatory expectations, as well as an increase in demand from customers as their levels of awareness increase.

2019 will test to measure the progress of Open Banking. No doubt its path to a greater uptake and success will be closely measured by regulators and industry influencers alike.

By Steven Bisoffi, payments advisory lead, Huntswood