In answer to your question: Open Banking is a red-hot topic in the very closed world of banking and financial services because, from next January, every bank will be obliged to offer it to you. Open Banking is a package of reforms emanated by the CMA (UK Competition and Market Authority), with the aim to facilitate the opening of the financial networks to allow for more competition and better consumer services. It harnesses the technological changes which we have seen transform other markets…
“STOP RIGHT THERE! The very last thing I want is an OPEN bank! My picture of a bank is of those massive steel doors you see in the movies, preferably a hundred feet underground beneath tons of concrete… That’s where I want my precious money kept.”
Yes, a secure vault is an important part of any bank. But have you noticed that all the new bank branches you see today are made of glass? No more heavy Victorian stonework and solid oak doors, it’s all glass, glass, glass. Because the thing that robbers fear most is being seen – hence their balaclavas and anonymous getaway cars – and they are much happier doing their dirty work behind a thick brick wall than in the open. It’s a universal rule: police warn people living in dangerous neighbourhoods that it is safer to surround the house with an open-link fence than a solid wall, for that very reason…
“So you are telling me that the purpose of Open Banking is to make my money more secure?”
No, the aim is far, far bigger than that. I just wanted you to understand that greater transparency or open-ness does not mean less security – quite the opposite, in fact.
Think of the other changes that have taken place in the High Street: once everyone had to wait at a counter to ask for goods to be fetched from a backroom store, now everything is visible on open shelves, so you can compare, choose and help yourself. Add to that the hi-tech benefits of on-line shopping where you can immediately compare prices and specifications, and read customer reviews…
Banks are slowly changing, but no change as big as that has happened yet. The old jokes about a banker being someone who lends you an umbrella on a dry day then asks for it back when it starts raining, still apply.
Open Banking, however, is not so much a bank with an open door, as a doorway to a whole new world of banking…
“What if I don’t want a whole new world of banking?”
Remember: Open Banking is about choice. And saying “no thanks” is an OK choice. But first let me explain…
The heart of Open Banking
At the heart of Open Banking lies the ability for people to share their financial transactional data with third parties far more easily online.
“Sharing financial data online? Now you’re really scaring me!”
That’s a knee-jerk reaction! Glass fronted banks is a sharing of data – visual data – and we’ve seen how that can actually make things more secure. What really matters is what data is shared to whom and how.
Here’s an example: a popular smartphone app that helps UK customers track their spending across all their current, credit card and savings accounts, no matter who they bank with, in one secure app. Instead of having to log into every one of those accounts and do the sums to find out how you stand financially, the app delivers the facts at a glance and makes it a lot easier to budget. It’s a great idea and on the app store it scores hundreds of five star ratings. But it also scores quite a few one and two star ratings, because Open Banking is not in force till next January, and sharing the data is still difficult or inconsistent between some financial services. In fact the app’s creators have been lobbying for Open Banking for years.
Other examples would be simple payment apps that allow you to pay everyday costs such as uber trips, parking costs and meals directly from your phone.
If you think that sharing financial data is scary, just think how much more it must scare the banks – who have centuries of tradition based upon keeping an extremely tight hold on that sort of information. They are not going to do Open Banking without taking the most stringent precautions to make sure that it is only available via highly secure routes to third parties with the strongest data protection in place.
But above all remember that the drive behind Open Banking is not to let banks to go haywire with your secrets, but to force them to give you greater choice. That means they will not share that data unless you allow it or ask them to do it. It is the customer who is being given more control, not the banks.
Can you see where this is taking us?
Think back to the days when shopping meant asking for goods at a counter, and how open shelves and self service has transformed the retail experience. It creates competition: goods have to be nicely packaged, with relevant information and clear pricing to compete on today’s shelves.
With Open Banking, financial services will be required to be much more open about their products and services, and how well they are serving their customers. Choosing a bank or service will be less like a private inquisition and more like buying apps or online shopping. What exactly is offered, the plusses and minuses, how it compares with other offers, and how customers rate the service – all this and more will be available. You can pick up the packet, compare it with the others, and put it back on the shelf.
A best-kept secret?
If Open Banking has become a red-hot topic among financial services, why have we not heard so much about it? The award-winning broadcaster and consumer champion, Georgie Frost, chaired a recent NetEvents panel debate on the subject and, when asked that very question in an interview, 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.” She pointed out that it would only take one scare story to make the headlines, and the whole project could be set back for ages.
Also interviewed was John James from the HSBC banking group, clearly excited about the possibilities and adding: “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.”
Another speaker was Scott Manson from Nationwide, who focused more on 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. I think it allows us to create a more competitive environment, a more innovative environment within the banking sector… It will allow customers to use their data in different ways, and I think that’s the crux of what open banking is. 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.”
The open future
Was Georgie Frost 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 earlier: Open Banking is not so much a bank with an open door, as a doorway to a whole new world of banking. And how can one predict or describe a whole new world?
To answer that, let’s look at just one company that has been working on other ways to “return ownership to the customer” and has already taken it a stage further in the real world. VaduvurBharghavan is CEO of an American company called Ondot that has recently launched in Europe and the UK, and he too was interviewed. He explained: “The core value proposition is 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.”
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 allows the customers to manage their accounts themselves, or else similar functionality that can be integrated into the company’s existing apps or interfaces.
So, what happens when you reach for your credit card, and it is not there? It usually means panic – when did you last use it? Where? What you are supposed to do is immediately inform the card company that it is missing, so they can cancel it before any harm is done. But many people would rather wait a little, hoping it turns up. With the card management facility, however, you could immediately block the card on your phone app so no-one can use it and, should it then be discovered behind a cushion or in a jacket pocket, you can immediately unblock it and sigh with relief.
There are also ways you can reduce the fear of losing the card. If, for example you normally only use the card paying for meals, you can set it so that it will only do that, or you might limit its use to certain restaurants or 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. But what if you really do want to buy a TV and only have that card to hand? Then you 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 issues 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 this too is 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, card management is already giving people a taste of what greater open-ness might mean. VaduvurBharghavan 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.”
It is patently clear what benefits this empowerment – the ability to make real-time management decisions –gives to the card holder, but what does it do for the company that is giving away this power? The obvious answer is that it makes a compelling offering – most people would prefer a card that allowed such control. Less obvious perhaps is the way that it builds a closer relationship with the customer, it enables interactive analytics about usage and choices, it opens the door for special promotions and more.
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 will 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 card management does provide a reassuring taste of some ways that an Open Banking world might develop. 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.”
The only thing that will never be left open is that massive steel vault in the basement.
The quotedNetEvents interviews can be experienced in full at…LINK