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Pamela Dingle, Principle Technical Architect,Ping Identity

How many times have you ever switched banks? Chances are, you haven’t. For most of us, it is inconvenient to switch bank accounts – alternative options are too similar, and it’s perceived as more hassle than it’s worth. In fact, over the last four years, just5 per cent of the 70 million banking customers across the country have switched between competitors.

Catching on to this, the UK’s Competition and Markets Authority (CMA) concluded that larger, more established banks were not competing hard enough for customers’ business, and that this was leading to stifled growth for smaller, newer players across the industry. Not just affecting banks themselves, the CMA also uncovered that many consumers are paying more than they should be for banking services, but not reaping the benefits.

Enter the Open Banking initiative.  As a remedy to tackle at least the technological barriers preventing customers from changing banks, the CMA is working with the nine largest banks in the UK to securely share account data, with the goal of driving innovation amongst competitors.  This initiative is occurring in the larger context of the European Payment Services Directive 2 (PSD2) legislation, which has similar goals but with fewer concrete guidelines.

Industry insight

The financial sector, like many others, is experiencing a digital transformation trend that puts customers in control of their own experience.  Across retail, property and travel, technologies are being deployed to enhance the customer experience, providing more personalised products and services. Open Banking has the potential to accelerate control and personalisation for the finance industry, by allowing trusted third party applications and services to operate on account and payment information that would otherwise be buried in proprietary banking systems. The opportunity for innovation will no longer rest within a single financial institution, but instead be available for customers who choose grant permission.

These changes are not small, and may have a significant effect on a previously slow-moving industry. Existing barriers that have often prevented banks from losing customers will soon be eliminated, making modernisation critical for any bank wanting to keep hold of its customer base. The industry will be forced to become more transparent, giving people greater insight into the vast range of products on offer. Customers will have a much better understanding of how their current bank ranks against competitors, and easily be able to call their provider out on anything untoward – whether it’s overcharging or under servicing.

Upscale and upsell

Designed to act as a driver of healthy competition and modernisation, Open Banking presents a major opportunity for the marketing of additional services. For example, when asked to select an account from which to complete a transaction, banks can responsively offer a loan or credit agreement in real time, using the moment to advertise additional products and services that solve real customer dilemmas.

In addition to opportunities for responsive engagement within a single given customer banking context, there is also now the possibility for institutions to operate across all customer banking contexts – aggregating data from multiple financial institutions.  With customer consent, banks will be able to target customers with personalised messages, offers, and analysis all based on specific requirements and shared previous interactions.  Well-written tools and applications no longer need to only apply to a single customer silo, but can span the entire UK banking space without requiring expensive proprietary integrations.

A digital banking strategy with upscaling at its core is not only vital to remaining competitive, but also enables swift adaption to new business opportunities.

Secure successfully

There is a required technological base that must be in place to seize the opportunities the UK Open Banking initiative offers.  Applications and services must be able to interact with financial institutions via identity standards such as OAuth 2.0 and OpenID Connect to request data and access banking APIs.  Financial institutions must be able to perform “Secure Customer Authentication” that conforms eventually to the PSD2 regulations.  All of the interactions described above must be not only secure, but must be intuitive to customers. If the initiative works as designed, sharing of account data and initiation of payments will become technically easier; however just because a customer can share their data doesn’t mean they should share their data; explaining the information that will be shared is a critical step towards ensuring that the customer makes an informed decision.

PSD2 and Open Banking are not the only trends that will affect digital banking platforms; any business that manages the personal data of an EU citizen will eventually be required to adhere to the General Data Protection Regulation (GDPR) when it comes into force on 25th May 2018. This regulation will strongly impact how both consumers and providers of identity information interact with customers.  Features for customer-centric control of personal data, portability of data, and information around use of data will be mandatory requirements, with strong penalties for non-compliance. Fortunately current trends in Customer Identity and Access Management (CIAM) such as omni-channel experience and single customer view are already resulting in a move towards features that highlight self-service for profile information, preferences, and consent.

As the January deadline for compliance draws closer, financial institutions should see Open Banking as an opportunity to refresh dated initiatives and better cater to customers. Those that are willing to innovate beyond legislation will reap the benefits of customer loyalty, while those that fail to go the extra mile may find their switching rates rise. Either way, Open Banking will arrive in the New Year and it’s here to stay!