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5G and Open Banking: Explosive growth or business as usual?

By Scott Johnson, Vice President, Head of Product at Western Union Business Solutions

We are entering a new era of increased connectivity and lightning fast data transfer. As the final rollout of 5G draws closer with each passing day, it provides us with an exciting opportunity to explore how it might impact our industry.

Scott Johnson
Scott Johnson

With the advent of regulatory developments such as PSD2, the landscape is already experiencing explosive growth. Fintechs, challenger banks and mainstays of the financial services world are all looking for more opportunities to meet the demands of their customers, who are increasingly expecting more seamless user experiences.

The implementation of 5G represents a further opportunity for businesses to capitalise on Open Banking-inspired technology and PSD2 regulations. It will help drive adoption of Open Banking in a few ways through its increased bandwidth, leading to improved services in several key areas including CX, FX, and security.

5G and Open Banking: Opportunities

Significantly, at a time when experience is everything, 5G presents an opportunity to improve the customer journey. This is primarily because it will be easier to build data-intensive applications that rely on a two-way feed of information between the customer’s device and the company’s server. A good example of this would be using customer inputs alongside Open Banking data to feed a conversational AI bot that could provide advice on investment strategies, risk management, or other complex decisions.

Furthermore, 5G’s superior bandwidths will also improve the speed of execution for a number of time-sensitive processes. This has the potential to be hugely impactful for certain areas of the financial services sector. An example of this is in FX transactions where markets are incredibly dynamic and a lag time of just a few seconds can change the economics of a transaction significantly in times of volatility. During periods of political and economic uncertainty, ensuring reliable, timely execution is of express importance and gives customers the confidence that the markets won’t shift before their transactions are made.

Finally, the increased bandwidth from 5G also opens the door to more complex authentication patterns requiring higher levels of data passing between the user’s device and the authentication server. This is going to become increasingly important as quantum computing becomes more mainstream and older forms of cryptography become easier to crack.

In essence, if deployed correctly 5G has unbridled potential to increase the speed and the security of financial transactions,improving the user experience that has already benefitted from OpenBanking regulations.

Open Banking and 5G in Action

In reality, it is still too soon to make concrete conclusions about how 5G will impact the financial services sector in Europe. Nevertheless, it is clear that several markets are already well equipped to adopt the technology and immediately reap its benefits. In particular, those that already possess fairly advanced mobile networks such as the United States, the UK, Australia, and China are primed to make the switch.

Despite this, many institutions in Europe are still scrambling to meet compliance benchmarks for pre-existing Open Banking technologies, meaning that they may not be able to benefit from all the opportunities mentioned above.

The September deadline for PSD2 Open Banking compliance continues to bean obstacle for many and there remains a lot of work to be done. Earlier this year, a survey run by Tink showed us that a large portion of FIs in Europe missed the regulatory deadline for having an API sandbox available for testing, so many players in the industry are playing catch-up.

However, one country that has welcomed Open Banking with open arms is the UK. Here, more than 100 financial services companies have enrolled to offer open banking services since its introduction over a year ago, with another 100 already slated to join according to the Open Banking Implementation Entity.

It is not a coincidence that there has been an explosion of innovation in digital banking services in this market, with a number of incumbents and challengers using data sourced from multiple financial services providers to help consumers track their spending and budget for the future.

Open Banking has increased competition and pushed companies to create better user experiences, strive to reduce friction, and focus more on their customers. From Monzo’s pots feature, to Yolt’s painless current account switching, it is certainly an exciting time in financial services.

When coupled with the improved bandwidth and speed offered by 5G, these technologies will open up new ways for the industry to help its customers make better decisions, from personal budgeting to building a risk management strategy for a small business.

I’m personally excited to help Western Union take advantage of these industry-wide innovations to help our customers solve problems efficiently so that they can ultimately focus more on their core businesses.