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The Open Banking Arms Race has only just begun

By Dan Scholey, COO of Moneyhub

Open Banking came into force on 13 January 2018, heralding the potential for seismic fintech disruption. But only now are we seeing large financial institutions wake up to the commercial opportunity presented by consumers’ ability to make their data work harder for them.

Many large banks have viewed the legislation as a compliance exercise, this has more innovative sectors a chance to get up to speed. The banks approach has meant consumers have not yet fully benefited from the hard work put in by the industry to deliver Open Banking but now organisations not traditionally associated with banking are able to step in and truly change the financial services landscape.

Progress has been made, but is revealing that, even now, there remain significant disparities in the speed that takes to consent to data sharing by banks – ranging from 18 secs (Starling Bank) to nearly five times that in the case of Santander. Conversely, those fintechs that now have the ability to provide not only a holistic financial view but also the analytics and tools needed to empower enterprises via either an API or White-label solution are coveted as a precious commodity.

But Open Banking has always been just part of the puzzle. We have been working tirelessly to develop the technology and analytical tools to transform the way businesses and individuals interact with their finances.  In the next few years, the financial services sector will be transformed by the increased creativity, flexibility, customer control and trust created by Open Finance integrations. As the fintech community develop their Open Banking capabilities, we are already providing solutions  in the bright new world of Open Finance – a more holistic proposition encompassing all financial concerns including pensions, loans, insurance, investments, and employee benefits.  This in turn gives businesses a deeper, richer, and broader pool of data on their customers’ financial lives.

In the digital age, data is the renewable energy powering innovation.  While data has now firmly established itself as the most valuable commodity, the clarification and mechanisms to support consumers owning their data opens up greater innovation throughout the financial services sector as it seeks to deliver hyper-personalisation to customers.

Financial services providers themselves are also in line to be significant beneficiaries, specifically non-bank firms, who have long coveted the daily interaction enjoyed by retail banking.  By knowing a customer’s financial habits, businesses can better market products to the individual – supporting the user to achieve their financial goals, thereby increasing the loyalty of that customer.  This is going to revolutionise banking.   Customers will suddenly have multiple different ways of engaging with their daily financial life and long-term financial planning through a single portal.

2020 suggests the nettle is perhaps finally being grasped, at least across the pond. Visa’s headline grabbing investment in Plaid, for twice its private valuation, places them at the forefront of this new mode of operation for financial services in the US. The high value of the acquisition should come as little surprise given the transformational potential for Account Information Service Providers (AISPs) and Payment Initiation Services Providers (PISPs) who are embracing Open Finance and enabling this transformation.

The deal value solidifies Open Banking’s position as pivotal to the future of financial services. The shareholder presentation makes it clear that Visa sees a huge long-term opportunity, arguing that the deal will help it to boost the companies’ own growth as well as providing a means to expand its addressable market and customer base. By firmly positioning itself in the Open Finance model, Visa hopes to harness the value and power of holistic personal financial data which goes beyond spending and saving.

The current Open Banking landscape in the US is vastly different than in the UK. However, the UK financial services industry will be looking at Visa’s deal as a potential sign of things to come. According to EY’s Open Banking Opportunity Index, partnerships with smaller fintechs have and will continue to be key for US lenders- particularly those regional banks looking to avoid being outmanoeuvred by the global giants. Visa’s deal is a sign that larger conglomerates are also now arming themselves, getting ready to compete in the new world of Open Finance.

As Open Finance becomes more mainstream in the UK, the decision will become business critical. As more established companies start to view themselves in the financial services space they need to decide to spend the time and money on upgrading their own systems or instead decide to use the technology already developed by expert fintechs, it’s clear that doing neither risks the long-term sustainability of the business.

Open Finance will be a fundamental aspect of financial services going forward – and companies’ response to the challenge will shape whether they are key players or simply spectators on the side-lines.