Open Banking is designed for competition, but that doesn’t mean it’s a contest

By Lars Trunin on Wednesday 16 September 2020

OpinionDigital Banking

Lars Trunin from TransferWise takes us through the six common mistakes he’s seen in open banking over the past two years

Open Banking is designed for competition, but that doesn’t mean it’s a contest
Image source: Lars Trunin/TransferWise.

Within fintech, it’s not difficult to find frustrations with Open Banking. Even now, two years on from its initial introduction, third parties are battling with a process that’s not quite what many had in mind.

It’s easy to place blame and say that the legacy banks are broadly at fault here, for doing the bare minimum, but those involved in the day-to-day know it’s far more complicated than that.

Alas, Open Banking wasn’t designed to make tech companies lives easier… if only. 

If we take a minute to remember why open banking was first introduced, it was to improve competition and not just competition between fintechs, but all financial services providers. It was implemented to ensure customers could get better deals, better experience, and more specialised products.

Since its launch, mistakes have been made, accolades have been won and there's been a lot to learn about the world of open banking. Here are just a few observations that have been made in the past two years.

It’s easy to overlook how the basics can become complicated

I’ve seen one bank that had two user journeys which felt remarkably similar. This bank needed a ‘login code’ to access the normal online banking functions, and a new ‘reauthentication code’ to access the Open Banking function. 

These codes were then designed not only to be the same length but to be generated similarly, so it was no surprise that customers got confused and often tried to use the wrong codes. Having different login processes wasn’t ideal, but making them so similar left customers confused and frustrated. 

It’s important to consider how something as simple as a different code length can help the customer experience. 

Some banks don’t want to let go of the old ways

Card readers are a bit of a relic now, and many institutions have moved away from using them entirely... but some haven’t. 

Those that are holding on to the trusty card reader are at a significant disadvantage - frankly - because everything about them is clunky. 

Reliance on additional hardware opens up a whole world of things to go wrong.

Add to that, the fact that some banks are applying disproportionate checks to low-value payments through Open Banking, and these processes can throw a spanner in the works, with a customer journey that’s layered with numerous checks and opportunities to ‘drop off’.

By including card readers as part of the Open Banking flow, institutions are immediately putting customers off. All parties involved want the easiest route to payment, and these simply aren’t it.

‘Good enough’ is not actually good enough

Claiming a flow is ‘buggy’ and ‘unreliable’ can cover a multitude of issues, but without a detailed view of what that looks like, it’s difficult to improve for customers. 

It’s not unheard of to see SMS codes or voice calls for security processes not coming in nearly quick enough for users to complete a payment. That means they’re left waiting, and sometimes timed out of the process completely, naturally leading them to find alternative payment methods. 

When you build your Open Banking processes, it’s important to remember that it’s not enough to simply make it work, it needs to work quickly and seamlessly, or it may as well not work at all.

The next obvious question then is how can our industry avoid some of these pitfalls—and ensure Open Banking delivers for their customers as intended.

We can break that down into three focuses. Firstly, take more care with your integrations, secondly, do more than just the bare minimum when it comes to sharing API data, and finally, as many fintechs have asked before, remove the 90-day reauthorisation cap.

Take more care with your integrations

It is, of course, not all doom and gloom. The future of Open Banking is bright if the industry chooses to embrace it in full. 

Nationwide, for example, has a consistently high completion record that’s similar to paying via credit cards, in terms of reducing drop off through payments. That’s a major benchmark for the building society. 

In addition, Monzo has done a great job of integrating Open Banking technology. Providing a reliable, user-friendly payment authorisation flow, alongside a very stable API to back it up. With a dedicated support team that engages with partners quickly and efficiently when things go wrong, and provides a 24/7 contact for incidents, it’s clear that their investment into Open Banking is genuine and considered, and not for show. 

Businesses who want Open Banking to work for their customers need to see it for the long term investment it is, and not a simple add on that can be thrown into the mix without much consideration.

Do more than the bare minimum

If we want Open Banking to be better for customers, then everyone needs to add more than the bare minimum, for both Account Information and Payment Initiation APIs.

Right now, some banks are restricting how much data they allow access to for Third Party Providers (TPPs). This means TPPs are struggling to get the data they need to create genuinely meaningful products. 

One example of this is exchange rates, where it’s still impossible to access the information needed to compare rates to competitors. It’s one of the major areas where customers still cannot make well-informed comparisons in real-time, due to lack of available data for TPPs.

To view it as an inconvenient box to tick is an attitude that will ultimately hold all of us back, and institutions who provide better details on their customers will be a key player in creating better products.

Take a stand on 90-day reauthorisation

Unlike the others, the issue of 90-day reauthorisation is not something institutions can tackle on their own. 

Current PSD2 legislation requires full reauthorisation every 90 days, making many Open Banking products inconvenient for users. It also often leads to user attrition for Third Party Providers (TPPs), which, in turn, increases costs. 

Worse still, this currently needs to be authorised in the users main banking app, rather than the app in question (think, logging into your NatWest account every 90 days so that you can access a pension consolidation app, which you likely only check once a year). 

While Strong Customer Authentication (SCA) is crucial when it comes to Open Banking, keeping customer experience front of mind is also key to making it a success. PSD2 could either allow customers to reauthorise within the app they’re using (making it cleaner and more efficient) or extend the time frame to be less of a nuisance for customers.

As Open Banking becomes more established, the industry needs to be more honest, and transparent about how this regulation can serve customers better. There is plenty for the industry to learn if we’re willing to be more candid, and vocal, about our experiences. 

By doing this, we can all improve the level of competition in the market, and quality of products for consumers.

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