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How the big banks have maximised the Open Banking opportunity

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How the big banks have maximised the Open Banking opportunity

By Kevin McCallum, CCO at FreeAgent

Despite being heralded as a game changer ahead of its roll-out in May last year, at first glance, Open Banking appears so far to have somewhat under-delivered on its promise of radical improvements. When the Competition and Markets Authority ordered its implementation almost three years ago, everyone enthusiastically welcomed the prospect of innovative challenger banks and other fintech companies using technology to disrupt the traditional retail banking sector. However, over a year on from the implementation date, the incumbents are still leading the field, leaving the industry upstarts in the dust.

By tearing down the barriers to the walled garden of the banking sector and requiring banks to give rivals and third-party services access to customers’ account data – subject to their consent – Open Banking was designed to spur competition through innovation. Many predicted that the traditional banks would become the pipes, acting as mere infrastructure providers which served nimble, third-party fintechs who would connect customers with an array of financial services in a user-friendly app.

This isn’t quite how things have turned out.

Instead, it has been the elder statesmen of the banking sector that have embraced Open Banking. HSBC was amongst the first to offer account aggregation (the ability to view information from all of a customer’s accounts in one place), and it didn’t take long before Barclays, Lloyds and RBS/NatWest followed suit.

Looking back, the way things have turned out shouldn’t really come as a surprise. After all, there are great incentives for big banks to get on board with Open Banking. Access to rival banks’ customer data, which can be used to aid product marketing and lending decisions, was always going to be an attractive prospect.

Starting small

Since Open Banking’s implementation, a number of digital only banks like Monzo, Starling, Tide and Revolut have entered the mainstream in the UK, and while these banks all offer features like savings round-ups, spending analysis, budgeting and merchant recognition, these innovations have happened within the context of a traditional bank account.

We are now starting to see the first signs of innovation amongst third party services which plug into bank accounts. For example, Moneybox lets its users round up their spending into a savings account and CastLight allows lenders to understand customers’ affordability more quickly. We have even seen Lloyds TSB offering their own tool, in the form of their loan comparison service, powered by Funding Options, which offers products from  a variety of providers.

Even so, these innovations are hardly leaps and bounds ahead of products that were already on the market long before Open Banking became a thing. The main difference is that these new products are using more sophisticated – and secure – methods of data collection. At FreeAgent, where we have offered bank account integration through more rudimentary means for several years now, we are witnessing strong customer demand for efficient, API-driven bank account access. Most onlookers, and indeed digital-savvy customers, had expected more expected to see more progress by now.

Slow and steady

Unlike the UK’s nine largest banks, which were mandated by the CMA to make account data available by January 2018, the digital upstarts have been free to sit back and observe how things play out – their deadline for the implementation of Open Banking isn’t until September 2019.  Also, importantly, unlike the big banks banks, they don’t need to transform their legacy systems for a digital age. For these digital banks, their future is in growth rather than reinvention.

Another potential cause of digital banks’ reticence to embrace Open Banking is that they often have less capital to hand than their more established competitors. This means that they have to plan out their investments more carefully than wealthier institutions, rather than dive headlong into costly initiatives. In fact, Monzo has publicly stated that it will explore the possibilities slowly, exploring whether to build features like account aggregation “in 2019”. For banks – even a cutting-edge, agile one – “move fast and break things” is a tough mantra to follow.

The challenges involved in adopting Open Banking are also likely to be behind the delay. Adoption is a complex process – even more so for account providers than for third-party accessing services, who merely have to handle the coding for integration.

All change

Come September, the playing field will level. As PSD2 becomes compulsory for all players, regardless of size, innovation will become more evenly distributed. But things won’t stop there.

While it may feel like Open Banking has dominated conversation in the sector over the last couple of years, partially due to the unexpectedly slow roll-out, we shouldn’t lose sight of the fact that it probably won’t be long before the cycle of adoption and innovation surrounding it dramatically accelerates, driving increasing numbers of services and competition.

Technology becomes successful when innovation becomes normalised. The ultimate test of Open Banking’s success will not be who is first to market – it will be when we no longer talk about it at all.

Banking

Commerzbank to lose 1.7 million clients by 2024 – Welt am Sonntag

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Commerzbank to lose 1.7 million clients by 2024 - Welt am Sonntag 1

FRANKFURT (Reuters) – Commerzbank expects to lose 1.7 million customers by 2024 as part of its current restructuring, resulting in a 300 million euro ($364 million) hit to revenue, weekly Welt am Sonntag reported, citing sources close to the bank.

The lender hopes to offset the drop by growing its loan business as well as by expanding its business with corporate and very wealthy clients, the report said, without giving any further detail of why customer numbers were expected to decline.

It also didn’t say if any specific category of client was most likely to be lost.

Commerzbank declined to comment.

According to the bank’s website it serves around 11.6 million private and small-business customers in Germany and more than 70,000 corporate and other institutional clients worldwide, so the reported loss of customers would suggest a drop of around 15%.

The bank earlier this month reported a $3.3 billion fourth-quarter loss, sinking further into the red as it continued a major restructuring and dealt with the fallout of the COVID-19 pandemic.

The bank’s restructuring plan involves cutting 10,000 jobs and closing hundreds of branches in the hope it can remain independent.

($1 = 0.8253 euros)

(Reporting by Christoph Steitz and Tom Sims; Editing by David Holmes)

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Citigroup considering divestiture of some foreign consumer units – Bloomberg Law

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Citigroup considering divestiture of some foreign consumer units - Bloomberg Law 2

(Reuters) – Citigroup Inc is considering divesting some international consumer units, Bloomberg Law reported on Friday, citing people familiar with the matter.

The discussions are around divesting units across retail banking in the Asia-Pacific region, the report https://bit.ly/3pD57WP said.

“As our incoming CEO Jane Fraser said in January, we are undertaking a dispassionate and thorough review of our strategy,” a Citigroup spokesperson told Reuters.

“Many different options are being considered and we will take the right amount of time before making any decisions.”

The move, part of Fraser’s attempt to simplify the bank, can see units in South Korea, Thailand, the Philippines and Australia being divested, the Bloomberg report said.

However, no decision has been made, according to the report.

Revenue from Citi’s consumer banking business in Asia declined 15% to $1.55 billion in the fourth quarter of 2020.

The divestitures could be spaced out over time or the bank could end up keeping all of its existing units, the Bloomberg report said.

The firm is also reviewing consumer operations in Mexico, though a sale there is less likely, the report said, citing one of the people.

Last month, New York-based Citigroup beat profit estimates but issued a gloomy forecast for expenses. Finance head Mark Mason said the lender’s expenses could rise in 2021 in the range of 2% to 3%, weighing on its operating margins. (https://reut.rs/2ZwXRB1)

(Reporting by Niket Nishant in Bengaluru; Editing by Maju Samuel)

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European shares end higher on strong earnings, positive data

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European shares end higher on strong earnings, positive data 3

By Sagarika Jaisinghani and Ambar Warrick

(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.

The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.

The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.

Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.

Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.

But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.

“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.

“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”

Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.

The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.

The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.

London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]

French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)

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