IBS Journal May 2018
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queue up, or rush to a hastily-located branch before the lunchtime close? How long would it take for them to abandon what had once been the be-all and end-all when it came to their financial wellbeing?
Technology has catapulted banks, institutions for whom the printing press was once cutting edge, into the modern era. The emergence of mobile technology, as well as the arrival of agile, customer- centric fintech companies, has meant that products and services are appearing in the market at blistering speed. For banks, which had so long dictated the pace of change, this revolution threatens everything from their bottom line to their existential relationship with the customer. The first shots across the bows were fired years ago, and now Open Banking threatens a punishing raking broadside. Yet the banks are well positioned to take advantage of this opportunity, and avoid going down with the ship.
What is Open Banking?
Way back in June 2013, when Bitcoin was only worth $100 and cloud computing was riding high on the waves of popularity currently carrying blockchain and AI, the UK’s Competition and
Within a bank there will be differing technologies built up over time without a real plan
“
Markets Authority (CMA) set out to investigate the way customers viewed their banks. After three years of study, the organisation discovered that less than 3% of people regularly switch banking provider, even if better value propositions were available elsewhere. This was despite a large marketing and awareness campaign for a switching service that would allow anyone to move banks within seven days.
The CMA report also revealed a monopoly at the heart of UK banking, albeit an unsurprising one: the four largest banks in the UK accounted for more than 70% of main personal current accounts and more than 80% of business current accounts. The body concluded that “older and larger banks do not have to compete hard enough for customers’ business” and that this saturation of the market was hampering the growth of challengers. As a result, it drafted a series of reforms to incentivise the opening up of consumer data to authorised third parties, be they fintechs, technology firms or even other banks. Arriving in January, Open Banking happily coincided with the second Payment Services Directive (PSD2), enforced by the European Commission (EC).
PSD2 introduced two new chess pieces to the bank’s playing board: Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs). AISPs can get access to a bank customer’s spending habits and account overview, while PISPs are far more proactive, and can initiate payments on behalf of the user. The latter is surely to bring the biggest competition to the banks – about 9% of payments revenues is expected to be lost to PISPs by 2020
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