by Nim Haas, Head of Marketing GPS
Open banking was always intended to use transparency to allow more competition in a previously closed market. Up till PSD2 going live, banks have had the monopoly on their customers’ banking data, but now the playing field is opening up to enable Third Party Providers to build their own financial services, in a sense on top of the banks’ infrastructure. Inevitably this has already generated significant IT costs for the banks – and it will continue to do so – as they require not only significant new work to create the required APIs, but need the highest standards of security and reliability because of what’s at stake.
So on the face of it, fintechs benefit and the banks get hit with a lot of new costs and risks. What about the customers? At this very early phase of open banking, it still seems unlikely that customers would abandon their relationships with their banks for the simple reason that a majority of banking customers in the UK still do not truly comprehend what it entails. Without understanding or a sense of the benefits of open banking, all you have are users who are naturally very sceptical in sharing their personal banking data.
Faced with this lack of understanding and resistance, how will third parties gain access, innovate and create new banking services? There will need to be a major effort to educate end users and this needs to be about realising the benefits of receiving better banking services. This effort is likely to come from fintechs,as they stand to gain more than the banks. However, fintechs lack the huge existing customer bases of the big banks, so any efforts at education will take time and investment.
This consumer understanding will catch on quickly when the time is right, simply because there’s so much to gain. As soon as customers gain a better understanding of the fundamental open banking ideas of freedom and transparency, gain confidence about how their data will be used and remain secure, and discover specific use cases that make their lives easier, we’ll see a quick mass perception shift and a higher adoption rate of data access consent being given. We will then we see the competitive landscape rapidly increase in intensity for incumbents, as they will not only be competing with other banks but with any player offering financial services.
As we can see, open banking adoption, and its promised effects in competition, are going to take time – but the shift of consumer sentiment will be fast when the time is right.
This means the commercial success of open banking innovation is highly dependent on timing: if fintechs move too early there isn’t enough market demand, however great the idea. However, for the banks, if they remain passive too long, the risk is that they really could lose that privileged direct customer interaction they always benefited from to a host of new players.
Nim Haas, Head of Marketing at GPS
Source: Competition, Disruption, and Opportunity: Consumer Banking in 2019-2020
Nim Haas featured on page 16 of the report