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The future of open banking: opportunities and challenges

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The future of open banking: opportunities and challenges

By Ed Whitehead, MD EMEA, Signifyd

In an ideal world, ‘2020’ is when open banking flourishes in Europe. The dream is that consumers can effortlessly manage all personal finances via one app, 100 percent confident their data is protected and in their control. Sadly, we do not live in ‘banking utopia’. The reality is that achieving the open banking dream is going to take an immense amount of effort and work to get right.

That is not to say that 2020 won’t be noteworthy for open banking’s future, because it will. Additionally, with PSD2 and its related SCA firmly in place, European consumers are naturally going to become more familiar with the new frontier of banking as we know it.

Consumers will benefit but so will the value chain

Ed Whitehead

Ed Whitehead

For consumers the compelling prospect of being able to easily access their full financial profile in one place, to compare terms, fees and interest earned on multiple accounts, loans and investments is within reach and very exciting. Being able to easily budget and accurately examine every expenditure will be right there in front of them.

What makes this possible is the fact that various regulations and rules allow data to be shared among banks, third-party service providers and businesses. This includes retailers and other parties selling services. This makes a whole new kind of commerce possible too.

New technology, alliances and incentives

This new open banking model is complex though. It needs the financial sector to not only construct the right technology to facilitate the ‘dream’, but it also requires effective alliances and incentives. For now, unfortunately, the truth is that banks are ill prepared to offer all that is needed to seamlessly provide this new form of commerce. Equally, consumers are not ready either.

This mismatch between open banking’s potential and the readiness to be able to use, or benefit from it, means there will inevitably be problems. Within this landscape, user experience will become a crucial differentiator. It will differ from bank to bank and by each third-party provider. The differences will be largely driven by what consumers demand and need.

Bringing the unbanked with us

Another conceptual challenge that comes with open banking is that it has largely been designed to support the ‘haves’— meaning people who have enough money to benefit from apps that track and manage their finances. These are usually people with access to smartphones, connectivity and a natural familiarity with using technology and apps that deliver the value provided by third-party applications. In contrast, the idea of open banking is somewhat of a non sequitur and a non-starter for the unbanked. So, this aspect needs to be further considered during the year too.

IT and cyber security challenges

As open banking starts to take off, the convenience that comes with sharing data will be accompanied by new cyber security risks, as criminals strive to attack the framework.

Additionally, open banking will put pressure on IT teams. Their expertise will be needed because, while some financial accounts integrate seamlessly through banks with third-party providers, others will fall short and result in consumers not truly benefitting from the so-called benefits of open banking.

Consequently, rather than 2020 being the year when open banking truly flourishes, 2020 is the year that banks, fintech and regulators need to sell consumers on a new model of conducting commerce more effectively — a model that more than likely will get off to a shaky start.

Educating and listening to customers is crucial

Aside from dealing with the various IT challenges, banks will need to develop sophisticated communication campaigns that explain how open banking works and benefits customers. These communication campaigns must involve two-way dialogue between banks and customers too. Banks need to listen to, and ask, what their customers’ experiences with open banking are? What works? What doesn’t? What new services and possibilities would make banking more valuable?  As they do this, banks – and the wider fintech community – will need to practice humility, compassion and customer obsession, because they have some catching up to do.

 The relationship between PSD2 and open banking

Alongside open banking sits PSD2. Both aim to provide better security, experiences and more choice to consumers. However, regulators and open banking architects moved ahead without consulting the end-users of their model.

Now consider open banking’s vision of building meaningful online portfolios for consumers through sharing data across banks, businesses and institutions. Sharing data requires consumer consent, which is good and necessary. But public opinion polls reveal that consumers are reluctant to allow their banks to share data. To emphasize this point, Accenture Research found in late 2017 that 69% of consumers in the UK said that they would not share data with third-party service providers. And 53% said they’d would never make use of open banking options, instead sticking with the way they’ve always banked.

Consumer perception needs to change

Over time the public perception and receptiveness towards open banking will naturally change. Already some businesses are making progress toward demonstrating the added convenience open banking can bring. HSBC enables consumers to access all their accounts, including competitors, through an app that they developed. Chip allows people to work out how much they can save each month and automatically deposits savings into an account. Credit Kudos analyses a user’s finances and establishes creditworthiness for financial services. Equally, some firms in the mortgage market generate spending reports, automate loyalty programs and more.

As more companies build convenience into their business models, people who were closed to the idea of open banking at first might decide to give it a try. Although, at the moment, the idea is hardly being rapidly adopted. The Financial Times recently reported only 25% of people polled by the banking technology firm, Splendid Unlimited, had heard of open banking; and only 20 percent of those said they actually knew what open banking meant.

As you can see, the inevitable bumps in the road during the early part of the open banking journey will increase consumer skepticism.  People require education and convincing. It’s hard for consumers to trust banks and other parties with their data – especially personal financial information they hold dear – when organizations can’t even manage everyday digital transactions.

So, the fintech sector has a big task ahead. It not only needs to keep up with the technological and regulatory changes required to successfully deliver open banking. But, it needs to bring consumers along with it by evangelizing the benefits that open banking provides; and target the early adopters, who have the potential to become advocates. The potential rewards for those who can lead the pack in 2020 are there to be taken.

Banking

Citigroup considering divestiture of some foreign consumer units – Bloomberg Law

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Citigroup considering divestiture of some foreign consumer units - Bloomberg Law 1

(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 2

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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Banking

ECB plans closer scrutiny of bank boards

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ECB plans closer scrutiny of bank boards 3

FRANKFURT (Reuters) – The European Central Bank plans to increase scrutiny of bank board directors and will take look more closely at diversity within management bodies, ECB supervisor Edouard Fernandez-Bollo said on Friday.

The ECB already examines the suitability of board candidates in a so-called fit and proper assessment, but rules across the 19 euro zone members vary, so the quality of these checks can be inconsistent.

The ECB plans to ask banks to undertake a suitability assessment before making appointments, and they will put greater emphasis on the candidates’ previous positions and the bank’s specific needs, Fernandez-Bollo said in a speech.

The supervisor also plans more detailed rules on how it will reassess board members once new information emerges, particularly in case of breaches related to anti-money laundering and financing of terrorism, Fernandez-Bollo added.

Fernandez-Bollo did not talk about enforcing diversity quotas, but he argued that diversity, including diversity in gender, backgrounds and experiences, improves efficiency and was thus crucial.

“Supervisors will consider furthermore all of the diversity-related aspects that are most relevant to enhancing the individual and collective leadership of boards,” he said.

“Diversity within a management body is therefore crucial … there is a lot of room for improvement in this area in European banks,” he said.

(Reporting by Balazs Koranyi, editing by Larry King)

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