By Martin Percival, senior solutions architect, Red Hat
When was the last time you heard someone say that they love their bank? Over the years in the UK, a small set of banks have risen to the top by offering a structured set of closed-loop services to customers. We’ve become used to this approach, choosing our banks based on the different perks they offer such as free cinema tickets, slightly better interest rates and air miles. But shouldn’t we ask for more collaborative approach from the organisations in which we trust our livelihoods?
Regulators and government bodies seem to agree. The Competitive Market Authority is working to democratise consumer data in a controlled way, enabling a broader ecosystem of providers to compete with the traditional banks in order to better the services offered to customers. With this change, information will be able to be shared between providers who offer different services, allowing the customer to either choose the best package or single provider for their needs. This system, often referred to as Open Banking, will enable more flexible providers to “win” and ultimately support the customer better. It might sound like a dream but soon, it will become a reality as new legislation rolls out.
What does this mean in practice? In simple terms, implementing Open Banking means that financial processes and data will become more visible, making it easier for customers to get hold of their own data and find out how banks are using their information – similar to how the technology industry is applying open source to share code and collaborate on new products. However, it also means that with information more readily available, the industry will become more competitive as customers will be able to move their assets and information around the banking industry more easily.
If you’re a bank, why would you want this? What is the benefit? Surely it makes it harder to retain customers and you’re giving away the intellectual property you’ve accrued on your long-term customers to your competitors? The answer is that many traditional banks don’t want it. But like it or not, the change is coming in the form of new, hefty legislations, like PSD2, and it’s coming soon. The financial industry is now in a race to see not only who can implement the necessary protocols to roll out a more flexible way of banking, but also who can take it a step further and turn it into an opportunity.
Open Banking provides the opportunity for new business models, enabling banks to develop new services and applications to sell into customers and layer on top of their established offering. But it also means that those who don’t capitalise on the change may find themselves in a race to the bottom to offer the cheapest service – and they won’t just be competing with other banks. Open Banking has the potential to change the competitive landscape and pave the way for a vibrant fintech community to come into play.
The fintech community is already looking at the upcoming legislation as the opportunity to increase revenue. Banks will now have to open their doors and make customer data available and this provides the opportunity for fintechs to set up a multitude of new services for customers. For example, they can build an app that you can use with all of your bank accounts, no matter which bank they’re with, and they can supply this information along with your mortgage details and stocks and shares in one place. They can also make it easier to move money across these accounts quickly – an ideal service for the businessmen and women looking to trade stocks rapidly. If banks don’t build on this opportunity in the same way that the fintech community is likely to, they may quickly find themselves boxed out of the market as the most efficient apps will likely already be developed and in use.
The new legislation likely means that a few sleepless nights are on the cards for CIOs and CTOs as they work to implement the flexible and scalable IT infrastructures needed to comply with legislation. To help tackle this challenge, IT teams should pull on their external resources and work with vendors who specialise in open source technology and can provide expert advice on how to capitalise on the change. Once this move is achieved, the possibilities that Open Banking provides beyond the traditional banking scheme are endless. Those banks that take advantage of the opportunities early on by setting up new services to optimise results in line with the directive and assert themselves above the fintech companies aching to muscle into the market may find themselves at the top of a lucrative industry.