The Age Of Open Banking
Will European mega banks be affected by new regulations? Will these changes impact you?
Large banks and financial institutions aim to bolster their bottom line and remain competitive. However, there has been one area where banks have been reticent to innovate: utilizing customer data.
Data Mining and Storage
If you look at the startups and fin-tech companies sweeping the market in the financial sector, they all have a keen understanding of their customer via data in common. The challenger bank Monzo, for example, helps a customer understand their spending habits with up-to-the-minute transaction notifications and budgeting tools. Apps like Monzo rely on customer feedback throughout their build process, tuning into exactly the kinds of services their customers think are necessary—and also the ones that aren’t.
A customer might have a credit card, debit account and a mortgage with the same bank. But it’s unlikely the institution sees that customer’s profile as one holistic entity. This is because for some time major banks have kept their customer data siloed and on lockdown. While the main motivation for this has been security and fraud protection for their customers, a major change to banking legislation is about to transform that approach.
New World of Open Banking
In the next year, two major pieces of legislation— the Open Banking Standard in the UK and the PSD2 in the EU—are due to come into effect. Both acts will require financial institutions to hand over their customers’ financial data to third parties. These additional resources will include direct consent from customers and use an open API framework. The legislation has been brought to the table by regulators. Regulators, who want to increase competition in the financial markets and reduce the monopoly large banking institutions have enjoyed for so long.
What this means for consumers is that “for the first time, the UK will have a transparent and financially inclusive market propelled by the power of the app economy, where innovative and secure apps can provide personalized services and easily accessible financial information in one place.”
Slow Migration to New Standards
An open API means that the data flows both ways. So, in theory, this legislation could be as beneficial to banks and the tech titans like Google and Amazon. They are eager to get their hands on customer banking data. The problem is that banks have not invested in innovation and customer-centric products for years. They have relied on their monopoly. While they’ve developed apps, the products have been ones that their customers aren’t particularly enthused by because they simply haven’t been a lead priority.
What this legislation means is that banks’ lack of innovation could finally coming back to bite them. Unless they act quickly, Monzo, Google or Facebook might well offer financial services to customers that are far more customer-centric and data focused than the banks offer. Don’t forget, these tech companies tend to implicitly have the kind of ethos—as well as the leading data scientists and engineers—that is centered on what customers want. Meanwhile, banks have been too busy competing with other banks, and not focusing on how to delight their customer.
Move It or Lose It
As one commentator put it, this is a make or break moment for banks:
“The big question facing banks in Britain and beyond is how can they transition from being holders of customer data to actually challenging the agility and ease of use that their fintech counterparts provide. With open banking, PSD2 and the global consumer appetite for the uberisation of banking, the opportunity for fintechs are unprecedented. Banks may need to rise to the challenge, according to experts, or prepare to be toppled off the throne.”
How do you think these regulations might impact on the way you bank? Are there changes you’d like to see?