When caught up in the financial services sector, it is easy to forget the pioneering nature of open banking. I was reminded of this of late at an open data event where, during the day, open banking was held up by several speakers as an example of innovation that could be applied to other sectors (as indeed might well be the case, as the Competition & Markets Authority evaluates the model for the energy sector)
Since its start, almost a year ago, take-up and awareness among consumers has been limited but these are early days. A recent survey by PwC and the Open Data Institute (ODI) found that while only 18% of consumers are currently aware of what open banking means for them, this is expected to increase steeply to 64% by 2022.
This will be driven by the development of innovative propositions, the benefits of which will outweigh current concerns around sharing data (this was the main worry cited by respondents to the PwC/ODI survey).
There is predicted to be a proliferation of account aggregation services to provide a single view of accounts across different banks. Indeed, these offerings are starting to appear from some large banks. The account aggregation services will be complemented by financial management tools that will use consolidated data analytics to identify spending patterns to allow customers to budget and save more effectively.
Also predicted by PwC and the ODI are tailored product offerings based on transaction history, such as customised holiday loans based on flight and hotel bookings and anticipated spend, and increased access to credit due to improved access to financial data.
This means challenges and opportunities. Banks need to work out their value propositions and the partnerships and data analytics to support these, all within secure and compliant environments. There are cultural, logistical and technical challenges, with the latter aspect necessitating modern platforms that provide the agility to rapidly integrate and adapt. Partners and third-party developers must be provided with access to core platforms to develop innovative products.
Open APIs and (not my favourite new verb) “platformification” will allow industry players such as fintechs, software providers and developers to readily integrate with an institution's banking and lending capability. According to the Harvard Business Review, Salesforce.com generates 50% of its revenue through APIs, Expedia.com generates 90% and eBay, 60%. By creating a marketplace environment and leveraging its platform and access to data, financial institutions will be able to see a growing return on their API investments.
Ultimately, it is difficult to predict too precisely where this will all head, given the uncharted nature of open banking. That uncertainty further puts the emphasis on flexibility and openness. The more that people build on a platform, the more opportunities there will be to differentiate. Open banking might well take banks into new markets, open up innovation and allow the capability to build highly competitive offerings.
What can be said with confidence is that the personalisation of services, to the considerable benefit of customers, will become the new norm. Open banking has arrived and it will be fascinating to see how it now evolves.