Efforts to shake up the way customer data is used have huge potential to reshape the financial services industry, despite a low-key beginning
It has been described as one of the biggest financial services shake-ups in the modern era, a catalyst for change in the relationship between consumers and service providers; a boon to major technology and shopping giants; and a potential threat to mainstream banks.
Yet, five months on from the advent of open banking in the UK, there is a lurking suspicion that people are as ignorant of its existence (let alone the possible benefits) now as they were in the lead-up to it.
Indeed, recent research by money app Yolt has revealed a mere 22 per cent of consumers are currently aware of the concept of open banking, despite the fact that almost 70 per cent of people in this country now
make use of platform-based banking sites to manage their finances.
Of those who did admit to a prior knowledge of the reforms, the vast majority said they had not noticed any tangible difference in the way that they dealt with their money.
This hardly seems like the ideal way to start an article about the transformative effects of this bold financial initiative (especially if we take into account the fact that six of the nine biggest current account providers in this country failed to meet their
Nevertheless, there seems little reason to doubt we stand on the threshold of an exciting new chapter in the history of banking.
Indeed, with an estimated two million customers already taking advantage of account information services, the stage now seems set for an explosion in uptake rates.
So, let’s look at some of the possibilities open banking could bring.
First and foremost, it will allow consumers to share their fiscal data with a range of banks and regulated third-party providers to compare and consume products in a way specifically tailored to meet their requirements.
It will enable them to manage accounts, investments and bills (irrespective of provider) across a single digital platform, and offer the chance to switch products based on the most favourable terms.
Essentially, it will emphasise convenience, choice and price over just about any other consideration.
All of this is great for consumers, of course, but not so good for service providers. The past few months have seen vigorous debate within the industry as to who is better placed to take advantage of the opportunities that open banking will afford: traditional, high street-based outlets or non-traditional (and primarily digital) challengers?
Some commentators point to the long-held trust and levels of brand recognition the established players have at their disposal, while others, such as Bank of England governor Mark Carney, believe innovative fintech providers will expose the “less stable retail funding and weaker, more arms-length client relationships” of the old guard, as well as the outdated legacy infrastructures that could be expensive to overhaul.
A third – and feasibly most likely – scenario will see brand-acknowledged banks enter into working partnerships with third-party service providers (just look at the much-touted coupling between First Direct and fintech upstart Bud) to upgrade hardware or transmit data.
Either way, a competitive free-for-all between market leaders and ambitious entrants portends great things for those who value innovation, product range and profit-squeezing front-line deals from their bank. Everyone, then.
A final possibility to consider is the rise of the tech-based consumer giants; those with a hitherto negligible financial market presence but a universal reputation. Experts believe that a marketing structure informed by wider access to customers’ financial data will allow Amazon and the like to appeal to a younger generation.
The success of Amazon Cash and of Amazon Lending, which has already made more than $3bn (£2.3bn) in loans to small businesses, could signpost the true outcome of our open banking revolution – representing the first tentative steps on the road to ultimate banking (or should we say world?) domination.
It is definitely not a scenario that should be dismissed out of hand because, with open banking, anything is possible, and the only thing truly guaranteed is transformation.
Phil Whitehouse is managing director of MCI Mortgage Club