Steven Bisoffi, Payments Advisory Lead, Huntswood
It has been over a year since the Open Banking UK initiative under the Competition and Markets Authority order and Second Payment Services Directive (PSD2) was launched and has become one of the industry’s biggest technology and regulatory shake ups in recent years. It is no surprise that the initiative’s first year has seen a relatively low consumer uptake. This has been coupled with reports that consumers’ knowledge of the scheme appears to be markedly low.
Despite some seeing this as an indication of failure, low uptake should be expected when launching an industry-wide scheme of this magnitude. It will need time to come into its own and patience is required from all industry participants and the government. This will allow for new propositions to establish themselves and for customer habits to change, paving the way for new Open Banking driven services and products.
Navigating the regulatory landscape
Under the PSD2, Open Banking sees users authorising third party providers (TPPs) and/or other Account Servicing Payment Service Providers (ASPSPs) to access their banking details through open Application Programming Interfaces (APIs). This brings to light concerns over how data will be shared between providers.
In the wake of recent technical glitches, consumer trust in banks has become increasingly strained, so this additional security concern may be a contributing factor to slow adoption of the scheme and ongoing reluctance to enter the initiative. It is therefore imperative that TPPs and the payments industry as a whole build up a good reputation and earn the trust of users, which in turn will help boost consumer confidence.
Nevertheless, steps have been taken to help reassure customers about how their data is handled. The Open Banking Implementation Entity, has a strong security team who have put in place appropriate security measures to try and prevent any bad practice. In addition, PSD2 requires the industry and users to use Strong Customer Authentication (this is where a consumer is required to provide two or more elements of identification for example, something they know, something they have and something they are - key information that customers must use to log into payment accounts or initiative payment transactions). Additionally, the Confirmation of Payee system – which will help prevent push payment fraud by ensuring banks, only process payments if the account holder name is correct – will help protect customers against fraud such as Authorised Push Payment Fraud, encouraging as many customers as possible to ‘opt-in’ to the new Open Banking propositions.
The opportunity for challengers and TPPs?
Traditional banks are now having to compete with challengers, primarily new Fintech or Techfin organisations with the agility to develop new services, which have thrived on providing app‐based, customer‐centric alternatives. Challengers should see this industry-wide shift as a key opportunity to continue demonstrating their innovative leadership in the space.
It also provides a huge opportunity for new entrants to the market. The next 24 months will see new propositions as a result of the open banking initiative, this will without doubt deliver a growth in consumer numbers adopting open banking like solutions.
Why consumers are the key to successful Open Banking?
Open Banking has been designed and implemented to allow customers greater access to their financial data and payment account, whether for sharing data with other regulated entities or for the purpose of payment initiation. Therefore, it is imperative that providers ensure customers remain at the centre of Open Banking.
Providers need to question their internal processes and operations to guarantee that enough is being done to inform the customer of how they share their information and what it is used for. It is important to note that Open Banking providers are not free from the requirements stipulated in the EU GDPR.
Banks, building societies and other ASPSPs will need to think and plan from a customer journey perspective. Leveraging data collected by TPPs or investing in innovative data analytics capabilities will provide useful insights into the customer journey, including insight into what users expect from their providers. This will allow banks to utilise insights that will guide their offering of personalised banking experiences.
Furthermore, Open Banking will be new to many consumers and so it is expected providers will experience an influx of queries. It is imperative that staff are trained and specialists are on hand to ensure questions can be answered swiftly and confidently. This will be a huge challenge, but one banks need to overcome in order to succeed. The term Open Banking will mean nothing to the consumer, and so more appropriate language is required, consistently, across the industry. The consumer is not fundamentally interested in Open Banking, their focus will be on the products and solutions delivered from organisations taking advantage of Open Banking.
What to expect in 2019
2019 will likely see a huge increase in consumer awareness of Open Banking and / or the ultimate propositions, resulting in a shift in customer attitudes and behaviour. These changes will no doubt be closely monitored by regulators and industry influencers alike. Challengers will continue to flourish under these innovative industry strides, but as consumer awareness grows and expectations increase, all banks will need to ensure that they protect and nurture the relationships they have with customers to deliver the success of Open Banking.