Open data represents the biggest challenge to banks in a generation

We all know the old adage that you’re more likely to divorce than change your bank account. But that’s all about to change as the banking sector faces its biggest challenge for over thirty years with the introduction of the Competition and Markets Authority’s “Open Banking programme” which will require banks to share their customer data with third party app providers. But what does it mean for consumers? Which non-financial companies might enter the marketplace? And how will banks respond?

Open data reforms in banking as announced in the CMA report this month mean consumers will soon be in the driving seat when buying financial products. Once customers give their consent, banks will be required to share their customer data with third-party app providers. In return, customers will be able to see information about which bank is cheapest, given their own individual pattern of borrowing.

According to Peter Sayburn from Market Gravity, which counts some of the UK’s biggest banks amongst its clients, “the financial sector is facing its biggest upheaval since the 1980s”.

“Open data will cause a major shake-up of the financial sector, opening up the market to digital disruption. A lot of people have been predicting that the Internet will transform the financial industry and now that time has come,” says Peter. “For consumers it’s great news. For those in the financial sector that have their heads buried in ‘business as usual’, the news won’t be so welcome.”

He continues: “The banks are faced with a major challenge as customers might choose to manage all their financial decisions via a totally separate interface. Companies that you wouldn’t traditionally expect to find in the banking sector may enter the marketplace, bringing new payment and money management services. The banks may not like it, but their customers certainly will as it will speed up purchases, potentially cutting out the bank’s role altogether.

It represents a new era of consumer choice in the banking industry”

“Ultimately, the result is that banks could lose the direct relationship with their customers if they aren’t digitally enabled or user-friendly. Consumers will undoubtedly look to switch accounts if a third party can do the job better and quicker. The message for the banks is clear: disrupt or be disrupted.”

So who might enter the marketplace? As with disruption in any sector, Sayburn says it can be hard to predict. “We have seen how digital has turned other industries on their heads overnight but the financial industry has been one of the last to be truly affected. The speed at which companies can enter a previously unchartered marketplace is staggering.”

“There’s potential for real upheaval in the banking sector. As well as opportunities for existing and challenger banks, we would expect to see moves from payment service providers and insurance aggregator platforms into this space through the open data opportunities created. For consumers, open data in banking could have profound effects on the way we buy mortgages, insurance and other financial products for the next ten years.

“Banks that embrace innovation and design new services for their customers will ride out the storm and even emerge stronger. But others won’t, and recent business history tells us exactly what will happen to them. They will cease to exist.”

“Banks and payment providers need to change their mindset and act like a challenger. They need to look at regulatory and technological developments as growth opportunities, not just operational issues. It’s important for payment providers to work closely with proposition designers, coders, developers and marketers to ensure new market opportunities are identified, and new products and services designed, developed and commercialised professionally and effectively ready for launch.”

Market Gravity was founded in 2009 by Peter Sayburn and Gideon Hyde. They founded the company to help big businesses transform ideas into breakthrough propositions and inject an entrepreneurial spirit into corporate environments. Market Gravity’s clients include British Gas, Barclays Bank, HSBC, BP, Boots, Argos, Standard Life and the AA.