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Open Banking, the fuzzy period

Like Captain Ahab at the start of the voyage, the banks are in a similar fuzzy period. Banks know Open Banking is coming and the rules must be complied with but what should they do, if anything, beyond compliance. The issue is if banks’ customers respond to the new open world and go digital with new services and products, the money being spent will be away from the banks. What happens if the customers do not take to Open Banking. Well those banks who chose to exert the minimum effort will gain the most against banks who believe Open Banking is a game changer. Like any voyage there is a sense of adventure.

Open Banking enables every customer to give permission for third party providers (TPP) to access their financial and personal bank data. That is a lot of data coming onto the market. Probably the most important data element is the money coming into the bank account.  For the first time, the actual money that can be invested, saved or spent is known. Gone is the need for credit reports that estimate the credit worthiness of that customer.

It is the availability of affordable, high powered technology that allows this tsunami of confidential data on consumers and business to be analysed on a one to one basis.  It is this review that will show where the money has gone and where it could go using predictability of what would happen in the future. In addition, Amazon-like suggestions of alternative financial activities can be offered to the banks’ customers.

The customers themselves can be classified into two main areas, consumer and corporates. The feeling in banking is corporates will be a major target for the new Open Banking world. Banks have worked very hard at providing digital banking to the consumers, as they were the first sector to embrace mobile technology. The digital business-to-business transformation on the other hand, which accounts for 81% of international payments, is behind retail. Banks had earlier and propriety versions of online corporate banking services, which most companies installed.

As most of the large corporates are multi-banked, the treasurers’ experience of its banking community is poor. As each bank’s system is different and requires its own set of procedures, the treasurer is trapped by legacy online systems. Open Banking offers the chance to escape into a world that can assess many banks through one, customer intuitive, intelligent gateway.

Consumers tend to be less multi banked but they have an array of financial apps on offer today. These apps, on the arrival of Open Banking, can now include personal, historic transactions. From this information TPP can tailor financial offerings designed around the individual. In addition, the third party can make payment on behalf of the account holder. One stop banking if you like with the strong probability the payment will be instant. (UK’s faster payments development annual growth is 105% CAGR as against 3% for traditional payments).

Banks themselves can now give customers the widest choice of apps, including their own. Banks can offer aggregation services and in turn price such services to benefit the customer, provider and bank. The generation of income out of Open Banking along with cost savings in offering self-service multi banking is the end goal. The opportunities are there as fuzzy as it maybe. Just like Capt. Ahab banks need to find these opportunities first even if it is to safeguard their existing customers.  

To find out more about open banking, register for the SAP Financial Services Forum 4-5 July, London. View more information here




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