Why Open Banking is the next finance revolution
The saying that the “customer is king” has been an accepted truism for a long time. But it is only recently that this has really been the case, with technology largely driving a shift of power away from traditional providers to the consumer.
Think of how music streaming services like Spotify completely changed how we listen to music. Similarly, Netflix and Amazon Prime disrupted how we consume films and television.
Over the last decade, we truly saw choice, convenience, and ease become the new normal for consumers — especially in entertainment and leisure.
In contrast, services around our personal finances have arguably lagged behind. But that’s about to change.
In this new decade, the next technology-driven revolution set to make life easier for the everyday consumer — from saving, to switching bank accounts, or even gaining loyalty points at your favourite lunch spot — will be based on Open Banking.
Open Banking builds on the revised European Union legislation Payment Services Directive (also known as PSD2), and since coming into force on 13 January 2018, it has required British banks to share customer data with established high street competitors and challenger banks.
Prior to Open Banking, banks would not share financial data with each other. Instead, they jealously guarded it.
But by freeing up this information, products and services which rely on that data — such as fintechs and banking — can become more attuned to the individual. That will enable companies to ditch the cookie-cutter products, and instead offer services and deals that are tailored to each individual’s lifestyle, preferences, and needs — as well as helping them to avoid getting into debt.
Ultimately, that will mean better access to the right products in the future for consumers, because banks better understand them. It will also allow account aggregation and instant transfers of payments.
HSBC’s Connected Money app was a good example of how this changes everyday banking: it allowed customers to view all their accounts at up to 21 different banks in one place.
However, Open Banking is still in its infancy. To start fulfilling its potential, wide-scale adoption is necessary, meaning a number of teething issues will need to be overcome.
Barriers to its full rollout have ranged from first phase bank-created systems being unreliable, through to consumer concerns around privacy and security.
Understandably, consumers have been initially wary of sharing financial information. But this will change as people become more educated about the benefits. For example, PwC reckons that two thirds of adults will adopt Open Banking by 2022.
And we are now seeing an increasing appetite among service providers to make use of Open Banking. Last year, the number of Account Information Service Provider licences (which allow a business to ask for permission to connect to a bank account and use that information in order to provide a service) issued in the UK increased from 37 to 88, according to consulting firm Penser. I expect that rise to only continue.
Crucially, Open Banking’s impact will not be limited to just how you bank. We’ve already started to see the integration of payments into the consumer experience across areas like retail, and 2020 will be the year that this starts to become commonplace.
Over the next few years, we’ll see more and more brands accepting payment directly in their apps, and forming partnerships with budgeting tools like challenger banks and saving apps that let you round up card payments to the nearest pound for either a charity or for your own savings.
Simply put, clever companies will harness this technology, as it enables them to adapt to meet consumer demand for the seamless simplicity that they already enjoy when it comes to music streaming or ordering a cab through an app.
Even how you rent can be transformed. For example, at flatfair, we are using Open Banking to enable instant referencing to make the process of renting a property easier and faster for tenants, landlords, and agents. Eliminating needless paperwork and speeding up this process benefits everyone, and creates a more trustworthy and transparent experience. Tenants can move into a property on the same day as viewing it, and landlords and agents can rest assured that the information provided is genuine.
This simple use of a new technology is the kind of smart innovation that Open Banking empowers.
In today’s super-competitive consumer landscape, where everyone expects an individual service, being able to offer a bespoke product to the ever more tech-savvy consumer will be crucial for businesses. Open Banking enables this across a broad range of products and sectors. Get ready for the next consumer revolution.
Main image credit: Getty