Before I go on, let’s be clear – the CMA’s Open Banking programme is not a new concept. It is based on the HM Treasury initiative, powered by the Open Banking Working Group (OBWG), who are determining the open API standards for Open Banking. The timeline has already been set in the Open Banking Standard. Add to this the API mandate of the European Commission’s upcoming revised Payments Services Directive (PSD2), and it’s clear that a tour de force of regulation aimed at bursting open the banking industry is already on its way.
What the report has done is hurtle Open Banking to top of mind – whether you’re a High Street bank, challenger bank, FinTech organisation or, to an extent, a consumer. So what does Open Banking look like? Who will it impact? How will they be affected?
A levelled playing field for banks
Firstly, the playing field will be levelled, thereby significantly impacting traditional banks. These High Street banks will need to think about how to reinvent themselves to make the most of these changes; adjust their role in the market; and reassess their relationship with their customers, third parties and new entrants, who will also benefit from secured access to customer account information.
Power in the hands of consumers
Those consumers willing to look will receive a better comparison service. Consumers will give permission for their data to be used for their purposes, rather than the interests of their bank. They could receive more comprehensive information and deals on their banking services, whether on an overdraft, mortgage, or current account. Open Banking strengthens the role the customer will play in the future, enabling them to shape their own service offering, and giving them access to the information they need to make informed choices.
Challengers can seize the opportunity
It also offers a new way of thinking for challenger banks and, in many ways, plays into their hands. Challengers are often more agile and nimble – once established banks open up their services and data to others, challengers may be able to cherry pick the best data to improve and transform their service offering. It’s not only the likes of Mondo or Atom Bank who will benefit. The market will be opened up to all types of new entrants, including those targeting specific market segments, such as The Services Family, a challenger bank I’m working with who are offering tailored products to armed forces personnel, veterans and their families. Tech companies such as Google, Facebook and Amazon can also use this new data to weave banking services into their offerings.
Time to prepare
Of course, we don’t know what the Open Banking standards will look like yet as they haven’t been published. But the CMA’s report should act as a catalyst to the FS industry. A common industry response to regulation can sometimes be a last-minute rush to comply – however, if approached in the right way, Open Banking could present a huge opportunity rather than a threat. Whether you are one of the big four banks, a building society, or an eager new entrant, you will have the option to take advantage of a new, open marketplace. There are enough regular, standard tools and protocols to make a start, and there is a significant first mover advantage up for grabs. For instance, let’s say you’re a bank and, in advance of your competitors, you introduce a new account switching solution for customers which in turn gathers a broader sweep of customer data. By doing so, you would be more informed and be in a better position to offer an improved and more comprehensive product – thereby securing those customers whilst also gaining a competitive advantage over your competitors.
As many commentators have highlighted, there are still barriers to overcome. Security and customer trust are huge challenges which will need to be addressed before some of these benefits can be realised. But the fact that we are talking about this at all means that the Open Banking revolution is drawing closer and, perhaps soon, we could find ourselves on the precipice of Open Banking, open data, and a world open to new customer-driven possibilities.