The twentieth century witnessed a revolution in the High Street.
Where the traditional retail store kept most of its goods behind the counter, and shoppers had to wait to ask a shop assistant to fetch what they wanted, by the end of the century self service was near universal – with all goods neatly packaged on open shelves where the customer could pick and choose at will.
Who would have imagined that the decision to put the customer in control would have such far-reaching effects? How many people resisted the change? Perhaps they argued that it was not safe to allow the masses to wander around open shelves, or that no-one would want to buy goods that other people might already have handled?
On the other hand, could any Victorian grocer have foreseen the out of town hypermarkets and malls that were to come? Or the “shop ‘til you drop” retail spree that would define the late twentieth century?
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Despite all this change, there remained a corner of the street that was barely touched by this revolution. It was the High Street bank. By the end of the twentieth century customers were still queuing to get to a counter so they could ask for whatever services were being offered.
From January 2018 the UK Competition and Market Authority (CMA) will require all banks to offer personal and small business customers “Open Banking” – basically, a chance to take greater control of their financial services.
Open Banking will, for example, give the customers an option to share their bank data securely with other banks and third parties, so that accounts with multiple providers can be managed through a single digital ‘app’. It means they can take more control of their funds – to avoid overdraft charges and manage cash-flow, for example – and they can more easily pick and choose between competing financial services.
Just as the open shelves of self service retail led to better, more informative packaging and detailed descriptions to attract shoppers and help them choose, so will Open Banking require banks to publish on their websites and in branches clear and objective information on their services and quality of service, so that customers can compare how each bank shapes up. It also requires banks to send out appropriate ‘prompts’ – such as announcing any increase in charges – to remind customers to review whether they are still getting the best value, and decide whether or not to switch banks.
Will Open Banking repeat the dramatic success of the self-service revolution? Or will banks resist this challenge to traditional ideas of security, will they hold on to control rather than share it with the customer? Or might customers themselves not want the option to choose from such a plethora of financial packages neatly laid out for them?
It is worth pointing out that rigid ideas about bank security had already been challenged towards the end of the twentieth century, when High Street branches started replaced heavy Victorian brickwork and massive oak doors with glass fronting. It was the realization that, in many cases, transparency can actually be more secure than secrecy – an important consideration in the move to Open Banking.
To answer some of these and other questions raised, NetEvents organised a Fintech panel Debate and a series of interviews on Nov 7th chaired by award-winning broadcaster Georgie Frost and featuring: Steve Walker, Lead Analyst at Global Data technology; John James, First Direct’s Head of Digital Product; and Scott Manson, Head of Payment Strategy, Nationwide. Also on the panel was Vaduvur Bharghavan, CEO of a US company called Ondot – and the significance of his presence will be explained later.
Open Banking: Challenges and Opportunities
At the start of the debate, Steve Walker gave the example of UK app developers that were already complaining in 2014 that the difficulty in accessing customer data from banks was “uncompetitive”. It was not that they were trying to overturn the financial world, they were simply wanting to offer a smartphone app that enabled users to scan their financial status across all their bank accounts, cards etc on a single interface instead of having to log on to each account and add up the totals. Steve pointed out the frustration caused by such restricted access: “Effectively, it was shutting down a whole innovation layer on top of bank services, around money management and financial insight.”
Sure enough, considering examples from all over the world, Steve concluded that: “Progress is not a straight line but, globally, we think we’re moving towards openness, and that’s going to change the fundamentals of the industry.” Number one consideration would be security: “It’s a well-known fact that banking receives 300, 400 per cent more cyber-security attacks than any other industry. That’s because the rewards are that much higher in terms of not only lost funds, but fraudulent identity, identity fraud, and banks have traditionally protected that by keeping the drawbridge closed.” Legally we are also entering muddy waters: “The liability model is complex. We could have a bank, we could have a payment provider, we could have a fintech firm. Who’s responsible for what data, when? It not easily resolved”.
In a subsequent interview, Georgie Frost was asked whether the public knew what was going to be offered, and she replied: “I don’t think the banks are doing nearly enough, if arguably anything, to prepare the consumer… We’re getting our letters through the post, talking about changes in Ts and Cs and, at best, people will file them in a drawer to read later, and never do. At worst, they’ll probably just file them in the bin, and then come January, no one’s really aware of what’s going on.” It was a valid point, but how could you explain to shoppers in the Edwardian era that allowing them to wander around collecting goods, instead of simply ordering them at the counter, might ultimately transform shopping into the world’s favourite pastime?
John James, on the other hand, had a vision of the immediate possibilities, and was clearly excited about potential opportunities: “First Direct, where I work, announced a partnership with a fintech called Bud to test a marketplace app that will allow customers to aggregate all their financial products together, so they’ll see what’s happening in one single log-on, and get some money management insight. But also, if they want to buy a product, they’ll see something called a ‘marketplace’, and that will allow them to access products beyond what First Direct and HSBC Group can offer them.”
The analogy with the supermarket shelves becomes very clear. Instead of having the goods handed to the customer, they will be all laid out for inspection, comparison and choice. For the vendors, that will mean open competition – and their financial products will have to be attractively packaged with clear labelling, ingredients and pricing. That is exactly what the backers of Open Banking want to see.
Also interviewed was Scott Manson from Nationwide, who said more about the way that Nationwide was preparing for the change. When asked about the thorny question of being instructed by a customer to pass data to third parties, Scott responded: “Personally, I think it’s a great idea… It’s about changing the ownership of the data from the banks and the building societies back to the customer, and I think that’s a great idea.”
So, what does Open Banking really offer?
With the panel mostly expressing high hopes for Open Banking, Georgie Frost took the role of Devil’s Advocate, pointing out that the public has not really grasped what is being offered. She even suggested that, in times of uncertain change it might only take one major cyber attack or security breach to turn the whole world against the project. But was she right to conclude: “I just don’t think customers are getting it. So, I don’t think we can look at open banking in the future unless we get this right”?
The fact is that Open Banking is not that easy to explain for the very reason suggested: that Open Banking is not so much a bank with an open door, as a doorway to a whole new world of banking. As with the self-service revolution, how can one describe a whole new world, or accurately predict where opportunities might eventually take us?
Maybe in anticipation of this challenge, a fourth speaker was included on the panel, who was neither a banker nor from the UK, but representing a US company that had independently been working on ways to help financial organisations to “return ownership to the customer”, and had already taken this a practical stage further.
Vaduvur Bharghavan is CEO of Ondot, a US company that has recently launched in Europe and the UK. He explained: “The core value proposition of Ondot is really to put consumers in control. It’s one thing to provide visibility. It’s another thing to make it actionable. The core value proposition that Ondot brings to the table is really making this information actionable.” In other words: here is an example that is already happening, rather than some future possibility.
What his company does is provide financial companies with software that enables their customers to take more control. It either provides a white-label app (branded by the issuer) that lets customers manage their accounts themselves, or else similar functionality that can be integrated into the company’s existing apps or interfaces.
So, what happens when a cardholder finds their card is missing? It usually causes some panic – when did they last use it? Where? What the issuer wants them to do is immediately inform the company that it is missing, so that the card can be cancelled before any harm can be done. But most customers wait a little, hoping it turns up. With the card management facility, however, the card holder could immediately turn the card off via their phone app, so no-one can use it and, should it then be discovered behind a cushion or in a jacket pocket, they can immediately turn it back on and sigh with relief.
There are also immediate steps that the card-holder can take to anticipate and reduce the potential fraud risk from a lostof stolen card. If, for example they only use the card to pay for meals, they can use the same app to restrict it to restaurant purchases, or they might limit its use to specific stores, restaurants, locations, or times of day. Anyone who steals the card to buy a widescreen TV will be sadly disappointed, and the card owner will be immediately notified on their smartphone. But what if one day they really do want to buy a TV and only have that card to hand? Then they simply go to the app and unblock it for the one transaction, as needed.
The fascinating thing about passing control to the customer is that people start finding new ways to use this service that even its developers had not anticipated. A parent issues cards to the children, tailored to how they should use it: so a daughter leaving home for university could have a card that only works in the university neighbourhood. A small company starts issuing company cards tailored to specific duties: so the van driver’s card will only buy fuel, and maybe only at certain stations.
So how do you summarise what this type of software is offering? The answer again is that it is actually opening a door to a whole new world, and the only way to describe that is to start experiencing it. While Open Banking lies ahead in the UK, Ondot’s version of open-ness is already giving people a taste of what might soon be available. Vaduvur Bharghavan pointed out a growing network of business partners: “We have two of the top 10 global banks in North America, where we really have a lot of market presence. We have six of the top 20 banks and six of the top 15 credit unions, and we have just over 3,000 financial institutions worldwide. So, we have significant deployments in North America, in India, in South East Asia, in Latin America, and now we are hoping to get to the European market.”
One amusing consequence of their white label sales approach is that, when pitching their solution in the US, they are increasingly getting a response along the lines: “That’s already available, it’s called Card Valet”, or “another company is offering Total Control” or “isn’t that just the same as Card Rules?” Of course, all these ‘alternative solutions’ are actually rebranded versions of their own software!
But is it good for the industry?
The benefits to the card-holder of offering this empowerment – the ability to make real-time management decisions – are patently obvious, but what does it do for the company that is giving away this power? The first answer is that it makes a compelling offering – for most customers, a card that allowed real time control would go straight to “top of wallet”. Less obvious perhaps is the way that it builds a closer relationship with the customer, it enables interactive analytics about usage and choices and it opens the door for targeted promotions.
Another potential benefit for the provider is that such added functionality might provide a means to address some of the growing demands of legislative compliance. The October 2016 Visa/MasterCard Alerts mandate, for example, requires US card issuers to offer users optional transaction alerts – just one of the many features offered by personal card management.
There is also something very important happening here. Steve Walker had referred to the massive attacks being directed at the finance industry. The challenge for financial institutions is to defend against a storm of intelligence pitted against them. There is the intelligence of the black hat hacker community, plus the intelligence or organised crime, and now the intelligence behind potential cyber warfare and industrial espionage. How much intelligence – human or artificial – can the industry afford to compete against such a focused onslaught on its security?
The answer is that Open Banking, through customer empowerment, could contribute a massive new security resource, if properly handled. Just taking the example provided by Ondot for the panel: the combined intelligence of a card-holder base that understands its own spending patterns and is now able to become actively engaged in defending its own capital and way of life is already reducing fraud costs, false declines and call centre calls, while increasing card usage, according to the finance companies that have adopted the software. What other form of authentication could possibly match that?
It is never easy to specify the benefits of something that is by nature an “opening” to a new world of potential, let alone make clear predictions about how it might develop. As John James said in the interview: “This is going to be a gradual thing. This isn’t all going to happen next year, and then that’s it. This is a long-term change.”
But VaduvurBharghavan’s example does provide a reassuring foretaste of certain ways that an Open Banking world might evolve. Just as glass walls have reassured the public that certain types of “transparency” can actually be more secure that secrecy, so does his company provide a comforting glimpse of a world where the public has greater control over their finances.
As Steve Walker, Lead Analyst at Global Data Technology put it: “I think in the move to open banking, for customers to be reassured enough to share their data, they need to have transparency around where it’s going, the ability to turn sharing on and off, and Ondot are delivering precisely that capability.”
The quoted NetEvents interviews can be experienced in full at…LINK