Open Banking Is Helping to Evolve the User Experience

By Leon Muis, Chief Business Officer, Yolt Technology Services

Whilst the COVID-19 pandemic has slowed down the pace of life in most areas, it hasn’t slowed down innovation within the financial services sector, as providers look for ways to gain a competitive edge in the post-COVID landscape. We’ve seen faster and further movement towards online and digital services, and that’s brought new solutions and turbocharged development for open banking.

In January 2020, the number of customers using open banking in the UK passed one million for the first time – a milestone that took two years to achieve following the UK roll out from January 2018. And it was only nine months later in September 2020 whereby two million customers were using open banking-enabled products: This growth was not necessarily achieved “despite the disruption caused by COVID-19” as the Open Banking Implementation Entity suggests, though the pandemic has undoubtedly created obstacles, but perhaps in part was achieved because of it.

You don’t have to agree with the Chime chief executive that the pandemic has made traditional banking a “relic” to accept the fact that it has had a profound impact in consumer behaviour – not least because it’s also been noted by traditional banks. And it isn’t just banking. ONS figures show that the first lockdown alone saw average weekly online spending in the UK increase from £1.52bn to £2.47bn.

However, as reliance on online channels increases, so do customers’ expectations. Consumers now demand services that are instant, convenient, personal and smooth. Open banking – and, in time, open finance, on which the FCA recently ran a call for input – could play a significant role in meeting those expectations.

Improved insight

Open banking can help to achieve this goal by using application programme interfaces (APIs) to provide account information services (AIS) and for payment initiation services (PIS). It can also build on these by using data enrichment to create additional value from the data gathered through APIs.

The specific benefits these bring will vary widely between sectors and organisations benefiting businesses and consumers/individuals alike. As a result, they will transform the consumer experience.

To date, account information services (AIS) are the most developed and underpin much of the work on data enrichment. At a basic level, they are already enabling thousands of customers to gain a consolidated view of their finances using open banking apps, whether from their bank or a third-party developer.

More significantly, though, AIS present opportunities for banks and other businesses to gain a much clearer insight into their current and prospective customers. AIS is currently only applied to current accounts and credit cards, which means that firms can gain a good understanding of existing and prospective customers’ finance and activity. However, if API connections were expanded to also include things such as investments and pensions too, firms could get a fuller picture of their consumers’ financial footprints.

That could radically improve convenience for customers – simplifying affordability assessments for lending, for instance, but also enhancing services. Combined with data enrichment, AIS can give organisations much better insight into their customers’ behaviours and needs to select and tailor appropriate products and services to them – and offer them at the right time.

Payment initiation services (PIS), meanwhile, offer customers the opportunity to pay for goods and services directly from their accounts. Much of the benefit here could be felt by retailers, as using PIS can help a retailer save up to 80% of a credit card fee for every transaction. During a time of such economic uncertainty, being able to save potentially millions from transaction fees could be crucial to retailers making a strong recovery from the COVID-19 pandemic.

Plus, PIS also bring an increase in security, which should provide reassurance to consumers and, for some banks, new visibility of transactions previously made on third party credit cards. That could, again, increase their ability to understand their customers’ behaviours and react more quickly than their competitors to changing needs.

Future promise

There is still a long way to go, of course, both in the development of services and the adoption by customers. In many cases, they go no further than regulations – available for current and some credit card accounts, but not for others and many savings accounts, for example.

Unsurprisingly, open finance development is less advanced. APIs are being used to connect to some banks to accelerate applications and decisions in principle, and in future could do much more – automating affordability and proof of funds checks, for example, to dramatically simplify the application process. Likewise, AIS for pensions and investment accounts, combined with data enrichment, could enhance understanding of customers and personalisation of services yet further. For now, though, it all remains some time away.

Future regulation may play a part in developing such services, but financial institutions would be wise not to wait until being forced to adapt. The competitive advantages of working with the available technology to enhance the customer experience and personalise offers and services already exists. As institutions take advantage of them, customers will come to expect the level of service it enables.

With coronavirus vaccines already being disributed and approved, the start of the end of the pandemic is in sight, but economic uncertainty and the recovery effort will remain much longer. As the recovery sets in, businesses will need to use all of the tools available to avoid being left behind.