Chapter 1
Data sharing is blurring industry lines
Insight generated from transactional data will open up a host of services beyond the financial.
Banks are at the gateway to a future of platform-based transaction-related services that are already reaching far beyond financial services, with the scope to develop vast new markets.
Open banking innovation is already transforming business and customer activity around the world.
In the EU, the catalyst for huge potential disruption and opportunity has been the revision of PSD2, which was implemented in the EU in January 2018. It regulates payment initiation services and account information services so that approved third parties can access payers’ accounts with consent.
From China and the Far East to the US, Australia and Canada, open banking is disrupting money management. Germany has already implemented PSD2, while Australia plans to phase in new regulation in 2019. Others, such as China, are taking a voluntary approach.
Nonfinancial service providers like WeChat in China’s highly innovative market are taking advantage of the opportunity to combine money management with other products and services ― leaving a question mark over the future role of banks.
For business customers, this new landscape might mean easy access through third parties to services beyond banking and loans, such as cashflow and payroll services, utilities, insurance and real estate management.
In the consumer sphere it’s likely open banking will also span utilities and insurance ― and potentially much more, from travel to entertainment.
The growth opportunity is unmeasurable. Global platforms such as Alipay are already emerging, with payments at the heart of what has become a multiservice consumer proposition. People in China go there to do a whole host of things that are not actually payments but are based on an integrated API ecosystem; open banking.
Think of a dating app that could look at your banking transactions. One subscriber spends money on Michelin restaurants and opera. The other spends on pizza and Netflix. Maybe they’re not such a good match.
Chapter 2
Should banks focus on data or relationships?
Both security and sentiment will be critical to success.
A financial institution-curated ecosystem will expand. And the entry point to nonfinancial services could be through a financial services relationship that allows Customers’ ‘membership’ of that ecosystem.
The relationship that banks have with their existing customers presents a new opportunity to dominate that entry point ― and a challenge.
With new players now able to move into the open banking platform space, incumbents have a window of opportunity in which to maximize their advantages.
Banks are well positioned to emphasize data security. All players in the emerging superfluid market will rely on data managed by banks, placing banks at the center of the new ecosystem.
Banks will still be liable for any declined financial transaction or fraud, even though they're sharing the information with the customer-approved third parties accessing data through APIs.
This weighty responsibility is also an opportunity for banks to communicate a strong message to customers around their security and anti-fraud practices, building on existing trust in their established brands.
One major UK bank used this opportunity when it launched its open banking campaign. It focused on the security aspects of its API model, which means customers do not have to hand over authentication details to third parties to benefit from open banking.
“Security has to be a given in banking,” says EY digital and innovation leader, Anita Kimber. “It’s the benefits and results that you deliver to the customer base that will make the real impact.”
Chapter 3
Brands that deliver customer benefits will win
Platform-based transactional services are being driven by convenience.
The personalized, connected dialogue that digitization is bringing about in all aspects of life will give customers a better-informed perspective on their financial ambitions, taking the leg-work out of ‘shopping around’.
Automation of service selection and delivery through open banking will create rate comparison services and shift financial services toward a benefit-driven marketplace. In China, self-service life insurance products have already upended the ‘agent’ model. The China market grew by 350% in the first half of 2015 to take 3.5% of market share.
Brands that promote the benefits and convenience of open banking may be in a stronger position to overcome concerns about security. After all, consumers in China don’t talk about open banking, they simply love what brands like Alipay and Tencent do for them.
For business customers, especially small businesses lacking a separate finance function, those benefits could be around integration with accounting platforms. Digitally advised platforms could review cashflow, not only identifying issues but also spotting opportunities, such as around insurance for a new property purchase or the right timing for a loan.
Beyond benefits for businesses alone, such platforms could bring wider gains not necessarily driven by business demand, for example, ease of digital tax filing through integration of banking data with account and tax-filing apps. This will create efficiency savings for governments and transparency benefits for wider society.
Similarly for consumers, convenience is not the only advantage. Digitized know-your-customer security developed in response to the open banking ecosystem, such as database-assisted photo-ID recognition, will allow individuals who don’t hold a passport or other current photo ID to access banking and transactional services.
While expensive, these measures significantly advance financial inclusion. ‘Unbanked’ small- to medium-sized businesses represent a significant growth opportunity for financial service providers in emerging economies, where 40% of financially excluded companies struggle to secure financing.
Currency digitization in locations such has India is rapidly encouraging previously unbanked consumers to adopt open banking-supported products such as insurance where state support is not available.
Such far-reaching benefits may support long-established financial services brands’ transition toward a stronger position of trust within more mature markets as they pursue growth elsewhere. Others may choose to reposition more directly, launching spin-out brands, such as already seen in the utilities sector with British Gas’ Hive, which offers smart, connected home products and services, and is focused on benefits rather than products.
It's those companies that become customer obsessed as opposed to product focused that will be the real winners in this new market.
Analysis of social media posts shows that 48% of negative consumer sentiment around open banking is driven by data protection and cybersecurity concerns, while 40% of positive social posts about open banking from around the world are focused on innovation and customer control.
Banks able to emphasize their role as custodians of data may reassure customers in some regions, such as Germany where concerns about the weight of customer responsibility have been raised.
Those banks able to educate customers about the changing, benefits-driven market may be best able to capitalize on sentiment in almost every market surveyed, from the UK, US and Australia through to more skeptical markets such as Singapore.
The success of wearable activity trackers within the insurance market shows that customers overcome security concerns when a direct benefit is available ― and some of the more exciting benefits of open banking are yet to come. FinTechs are currently focused on account and data aggregation (23%), with fewer developing potentially transformational propositions such as automated affordability analysis (6%).
As digitization continues to drive the move away from cash, and transactions become increasingly trackable, analysis of spending patterns, loyalty and bundle benefits may offer the value that help businesses and consumers trust and engage in open banking, allowing banks to grow new revenue streams.
Financial services are entering a new era where money management will be digitally connected to every aspect of business and consumer life. First movers are already seizing the opportunity to collaborate with vendors, retailers and other service providers to lay the foundations for financial institution-curated transactional ecosystems.
Summary
The global financial services market is transforming as technology blurs the lines between sectors, creating new benefits for businesses and consumers that will radically change the way money is managed.
