YouGov stated that, in August 2018, only 28 per cent of the British population were aware of Open Banking. Consumers have historically been very loyal to their banks – typically they choose an incumbent as a teenager and stick with it for life. However, as lots of organisations look to third-party partnerships to capitalise on OB experiences, consumers may be more likely to change their behaviour in return for better opportunities and offers.
There are numerous benefits to OB. In terms of money management, it helps to create a centralised portal where consumers can view their different bank accounts. On most apps you will usually be able to view your monthly ingoings and outgoings across aggregated accounts only via a dashboard.
OB also simplifies the lending process. Instead of a borrower having to prove their finances, OB allows them to provide this information online by giving banks access to spending history, speeding up underwriting and application approval. Making payments becomes easier too, cutting out the third-party acquirer.
Currently, account aggregation is the first and most visible application of OB being seen by UK banks. HSBC and First Direct launched separate aggregator platforms, Connected Money and Artha respectively, and a number of UK banks, such as Barclays, introduced aggregation as a feature in their main mobile platform.
These offer limited functionality with part of the issue being the slow integration of APIs. Artha was withdrawn by First Direct as it was a trial of features to be later integrated into its main platform, although this is yet to be seen in its current mobile application.
Third-party aggregation platforms in the UK, such as Yolt and Emma, are still underdeveloped, yet provide a real threat to incumbents due to the lack of differentiation between propositions. If customers can manage their entire financial lives in one place, there will be no need to interact with their primary account’s app.
This will reduce the customer’s engagement with their bank, making it far more likely for them to switch provider. Incumbents need to ensure that their experience matches or outstrips that of fintech challengers.
Third-party partnerships are opening up opportunities for consumers via their OB hubs. These partnerships allow banks to embrace the potential to differentiate themselves through the adoption of external services, inevitably improving experiences and keeping their customers loyal.
The benefit for the incumbent? They can integrate third-party technology and infrastructure into an existing platform without having to build a completely new one.
To make OB a success for banks, three ideas occur:
- Invest in marketplaces As OB becomes widespread and customers slowly begin to adopt it into their financial lives, the experience will become standardised. The opportunity to differentiate comes from the third parties that can be integrated via APIs. Customers will see real value in being able to choose services to plug into their main bank accounts that match their needs. Although it is in its early stages, this will likely be adopted across the board, which makes it an important factor for incumbents to work in.
- User experience The customer experience has to be at the forefront. Banks need to make it clear to the customer why OB will be useful for them and ensure the journey is seamless. As there is little differentiation at the moment, banks should focus on providing an excellent external account aggregation process. This should include viewing and managing the accounts once they have been added.
- Payment initiation Currently, customers are only able to view their balances and transactions across all incumbent OB hubs. Yolt recently integrated payment initiation Yolt Pay, but the process is slow, requires countless logins and the entry of lots of information. With a lengthy process, it is unclear how this would make it easier for the consumer, rather than just logging into their respective banking apps to make the payments. In an ideal world, customers will be able to make payments from any of their accounts from the same app in only a few steps.
Anne O’Leary, research analyst, Mapa Research