Attempts have been underway in Parliament recently to help tenants improve their creditworthiness. This includes new legislation to make lenders give rental payments the same weight as mortgage premiums, including most recently Big Issue founder Lord Bird’s draft Creditworthiness Assessment Bill.

Open Banking - ahead of any future legislation - offers tenants the potential to achieve improved creditworthiness at no extra cost.

The launch of Open Banking in the UK last month, backed by nine key UK banks, is now enabling renters who want to get a mortgage to improve their creditworthiness with an ease that would have been unimaginable only a year ago, says CreditLadder.co.uk.

Instead of onerous paperwork or agent/landlord permissions - as has been the case in the past - tenants are now able to report their rental payments via mobile/online platforms simply, quickly and for free.

Tenants tell their bank they want the platform to ‘read’ their rental payments and pass this information on to a credit reference agency, such as Experian.

“When we launched our Open Banking service last month we were acutely aware that the take up maybe held back given the newness of the technology,” says CreditLadder CEO Sheraz Dar.

“But so far Open Banking is proving popular with our customers. The number of people signing up to our service has doubled and last week 80% of those applying to join our service now do so via Open Banking.

“Many of the UK’s 11 million private renters are finding it harder and harder to get on the property ladder, so it’s no surprise that a service like ours which gives them a leg-up is proving popular.

Case study

Civil Servant Ian Cuthbertson, 33, from Norwich is the first person in the UK to sign up and register his rental payments with a credit agency using CreditLadder’s Open Banking service, which is provided through an FCA-regulated partner.

Ian pays £700-a-month for a two-bedroom barn conversion he shares with his partner on the outskirts of Norwich, payments that are now being added to his credit history via CreditLadder.

“My partner and I are planning to buy a home in a few years’ time so I’ve been realising more and more that I need to improve my chances of getting a mortgage,” he says.

“So I’ve been looking at how I manage my credit cards and trying to make little tweaks here and there to my finances so that I present myself as trustworthy to lenders.

“I was thinking to myself that I pay the rent on time every month and wondered if that could count towards my credit score. And then I saw an article on MoneySavingExpert.com about CreditLadder so I decided to sign up.

(Source: CreditLadder)

Stephen Ufford, Founder and CEO of Trulioo, discusses how mobile can offer increasing protection against modern fraud.

In a world where interaction is increasingly made through screens rather than face-to-face, it is often difficult for companies to tell exactly who their customers are online, which poses a serious risk to security and compliance.

This threat is doubled by increasing legislative pressure. A host of new regulations passed at the end of 2017 mean that companies have to focus more and more on knowing exactly who their customers are.

The end of January was the final deadline for financial services firms to register ‘ultimate beneficial owners’ so that the individuals behind every account, and those who benefit from it, are clearer. The Fourth Anti-Money Laundering Directive (4AMLD) stipulates that companies need to be aware of the ultimate identity of business entities. Prevents the development of shell companies for tax evasion and money laundering, among other financial crimes.

Under the Second Payment Services Directive (PSD2), which also passed in January, any transaction above 30€ needs to be subject to a two-factor authentication process, which verifies the identity of the customer through two separate pieces of information.

This can be based on something they know, such as a password; something intrinsic about them, such as biometric data like fingerprints or facial appearance; or something they possess, such as specific documentation.

In a digital age, this is easier said than done. Gone are the days when customers walk into a branch to set up their bank account in person. The vast majority of financial interactions nowadays are carried out simply through the click of a mouse or, more recently, the swipe of a phone. The number of mobile phone users in the world is expected to surpass the 5 billion mark by next year.[1] Last year, mobile transactions overtook those made online and in branches – according to data by Visa. [2]

But this increasing shift to mobile devices can provide a KYC opportunity, offering another item that customers possess, and can use to identify themselves. With access to Mobile Network Operators (MNOs), financial services firms can access another form of identification – possession of a specific handheld device.

This usually involves an SMS text message being sent with a verification code to the user’s mobile. The code can then be used to authenticate that the account being accessed is by the owner of the phone, verifying identity through possession of the device. MNOs already have access to extensive identity information on their subscription holders, as they are also expected to meet stringent KYC requirements. Financial Services firms can use this vital layer of identification and compare it against other pieces of evidence, such as document and passwords, for the benefit of all parties.

Another useful function of handheld devices is their capacity to record biometric data. The majority of smartphones include a front-facing camera that can be used to take a photo, capturing inherent data about a person’s appearance.

As technology on phones improves, this opens up opportunities for further layers of authentication. Many iPhones have the capacity to register fingerprints, as well as the facial recognition capacity extensively advertised in the iPhone X.

At the moment, these innovations are limited to higher-end devices. However, as this capability becomes more widespread amongst devices, using further biometric data proofs for customers will become increasingly feasible.

Additionally, the ability of mobile devices to verify identity has a wider potential for citizens of the world. Vast numbers of the global population are unbanked, not included in the financial system, and without a financial identity. But the extreme reach of mobile technology could change this.

In Mexico, for instance, only 40 percent of adults have a bank account, yet there are 80 phone subscriptions for every 100 people. Being unconnected to any formal bank can leave many people financially disempowered, unable to access any kind of financial services, which leaves their funds insecure and without growth potential. The ability to verify identity through mobiles means that previously unbanked individuals can be provided with access to financial services in the future.

In an increasingly globalised world, borders are becoming more fluid. The global population is more mobile than ever, with many people moving between borders for work or shopping in foreign countries over the internet. Cross-border e-commerce, for instance, is growing at 25 percent annually.[3] As individuals and money routinely travel increasing distances between geographical and legislative areas, this makes securing identity and tracing transactions more difficult than ever.

But mobile devices can be taken across borders and connected to their original MNO via other local networks. In a growingly interconnected world, as fraud threats become more sophisticated and regulation more stringent, mobiles and their networks can provide a consistent proof of identity that brings security and increased access to financial services for everyone.

[1] https://www.statista.com/statistics/274774/forecast-of-mobile-phone-users-worldwide/

[2] https://www.visaeurope.com/media/pdf/40172.pdf

[3] http://www.dhl.com/en/press/releases/releases_2017/all/express/cross_border_ecommerce_is_one_of_the_fastest_growth_opportunities_in_retail_according_to_dhl_report.html

In force since January, the Second Payment Services Directive (PSD2), aka Open banking, is a regulation that forces the largest of our banks to open up access to their data; a necessity that could change the way many people and businesses bank. Below Jerry Matthews, Commercial Manager & Head of Bridging at KIS Finance, explains everything you need to know, touching on the risks and opportunities therein, and answering the big question: is it safe?

The Competition and Markets Authority (CMA) has started a revolution which encourages consumers to share their financial data to third-party companies, after years of being told to do the exact opposite.

The Open Banking Implementation Entity (OBIE) was created in response to the UK Government’s request for a fairer, more transparent banking and financial services. Transparent is definitely what they got.

What is Open Banking?

Open Banking is a new system which means customers can allow third party providers, other than their bank, to access their financial information.

These providers can be anything from insurance and mortgage companies to shopping sites, mobile phones and broadband providers.

The main idea is to give consumers more control of their financial information and have access to a wider range of products and services. Customers can allow the company to analyse their spending habits and offer them better deals, tailored to them.

There has been a new change in UK law which means that banks must allow FCA regulated businesses to access a customer’s personal and financial information, but the customer must give their permission first. Customers can give and withdraw permission at any time they choose.

The bank can only prevent the business access, on the customer’s behalf, if they suspect that the company is fraudulent, or not regulated by the FCA.

When will Open Banking Start?

Four of the nine largest UK account providers, Lloyds Banking Group, Nationwide, Allied Irish Bank and Danske are ready to start Opening Banking now.

Six weeks maximum has been given to RBS, HSBC, Barclays and Bank of Ireland by the Competition and Markets Authority (CMA). Santander’s Cater Allen has been given another year to prepare.

In order to integrate the new system smoothly, for the first 6 weeks the banks and companies offering Opening Banking services have been asked to only make it available to a small group of selected customers and to limit the amount of instructions processed.

How Will These Third-Party Providers Gain Access to our Information?

There appears to be two methods as to how your information can be accessed;

API’s: New communication technologies have been developed, Application Programming Interfaces, which are designed with customer security at the forefront. API’s are regularly used by various online tools and mobile apps to provide joined facilities, allowing software from numerous companies to, essentially, ‘talk’ to each other. This way, your information will be securely passed between companies with this technology in place.

Log-In Details: Another method may be that third-party providers will request that you share your online bank log-in details directly with the company. Yes, you read that right. A separate piece of legislation, the Payment Services Directive, will allow some companies to do this.

The company can then log in to your online banking account, like they were you, to access your financial data, such as; transaction history, direct debits and standing orders. This means that the company is likely to be able to access a much larger range of information, so really, the one way to withdraw your permission to this company, for certain, is to change your account password and other security details.

Do you Actually Have to Share your Information?

I am glad to say no, this isn’t mandatory.

The new rules state that banks must allow third-parties access to your information, but you have to explicitly give that company your permission – they can’t just look at your account willy-nilly. There will be an option to either switch on or switch off Open Banking on your account.

Once you have given that company permission, it’s not set in stone either. You can withdraw your permission at any time.

So, there is some security in knowing that this isn’t some sort of new binding contract.

So, what are the Potential Risks with Open Banking?

Current surveys suggest that a majority of consumers are reluctant to hand out personal and financial data. But, with the new system, this behaviour is expected to steadily change over time.

However, this does open up massive risks surrounding data privacy and security.

There are worries concerning the fact that by creating more chains of data access, it will be much harder to prove who was at fault if the customer’s information is stolen, making it harder than it already is to be compensated in these situations.

Not to mention how people handing out personal and financial data is like a gold mine to fraudsters.

To name just one potential scam, fraudsters could easily mimic third-party providers, by copying their choice of contact, to trick people into handing over their data which leaves consumers at risk of losing their money, and potentially, their identity being stolen.

Also, giving a company your bank log-in details with the only secure way of knowing that you have cancelled your permission is by changing your password? This is the main thing that consumers are told to never do, to never hand out your bank log-in details. This leaves your details at huge risk, and something just doesn’t make sense to me.

It is absolutely vital that the industry regulators ensure that consumers are wholly protected from any data breaches if they are to use these services with confidence and trust.

The Positives…

Although I think there is a lot at stake for people who decide to go forwards with Open Banking, I do think, for some people, this could be a way to gain much better control over their finances.

With Open Banking, it could be made easier to assess what type of bank account is best for you by analysing how you actually use it. For example, a lot of people can be unsure of how much their overdraft is costing them, but if a company can see your account, they may be able to provide you with a much clearer perspective and give you cheaper alternatives.

Or, for people who want to save money but are struggling to do so, sharing their data with budgeting companies/apps could help them see where and how they can save money.

As we herald a new era of banking, will PSD2 result in FinTechs challenging the dominance of traditional banking services?

13^th January 2018 marked the beginning of the Open Banking era. The EU’s Second Payment Services Directive (PSD2) which took effect earlier this month forces banks to allow third parties, including digital start-ups and challenger banks, access to their customers’ financial data through secure application programming interfaces (APIs), and create a new way for customers to bank and manage their money online. If all goes to plan, PSD2’s main objective is to ensure maximum transparency and security, whilst encouraging competition in the financial industry. The Open Banking revolution aims to create a form of cooperation between banks and FinTechs – however, this doesn’t seem to be the case 18 days after the triggering of PSD2, with a number of banks that still haven’t published their APIs and incorporated the necessary changes. Naturally, the directive is good news for the FinTech sector. FinTech companies and digital payment service providers will gain greater access to high-street banks’ customers’ financial data – something that they’ve never had access to in the past. This will then undoubtedly inspire FinTechs to develop new innovative payment products and services and provide users with opportunities to improve their financial lives, whilst allowing them to compete on a more-or-less level playing field with the giants of the financial services industry, the traditional banks. Does this mean that traditional banks will need to up their game when competing with the burgeoning FinTech industry? Are they scared of it, and if not – should they be?

Traditionally, and up until now, banking has always been a closed industry, monopolising the majority of other financial services. The recent advancement of digitisation has shaken the industry, with FinTech start-ups offering alternative solutions to more and more clients across the globe. From a bank’s point of view, PSD2 will forever change banking as we know it, mainly because their monopoly on their customers’ account information and payment services is about to disappear. Banks will no longer be competing against banks. They will be competing against anyone that offers financial services, including FinTechs. And even though the directive’s goal is to ensure fair access to data for all, for banks, PSD2 poses substantial challenges, such as an increase in IT costs due to new security requirements and the opening of APIs. However, the main concern is that banks will start to lose access to their customers’ data.  Alex Bray, Assistant VP of Consumer Banking at Genpact believes that a possible outcome of Open Banking is that banks could end up surrendering their direct customer relationships. If they don’t acknowledge the need for rapid change or move too slowly to adapt to the landscape, they risk becoming “commoditised payment back-ends as new aggregators or payment initiators swoop in”.

However, Alex Bray also argues that for banks to take advantage of PSD2, “they will need to find a balance between openness, privacy and data protection.” There is also a case to suggest that traditional banks who embrace and utilise the new directive to its potential could transform a potential threat into a huge opportunity. He also suggests that: “they [banks] will need to improve their analytics so they and their customers can make the most of the huge amounts of new data that will become available”. Only a well-thought-out strategy will help banks to survive the disruption to the long-established financial industry – and cooperating with FinTechs can be part of it. Alex Kreger, CEO of UX Design Agency suggests that “Gradually, they [banks] could turn into platform providers of banking service infrastructure… As a result, successful banks may lose in service fees, but they will gain in volume. Many FinTech start-ups will not only offer services on their platform, they will actively introduce innovative products designing new user experiences, thereby enriching the financial user’s journey and transforming the banking industry. This will attract new users and provide them with new ways of using financial instruments.”

Only time will answer all the outstanding questions related to the open-banking revolution. FinTech firms are expected to ultimately benefit from all these changes – however, whether the traditional banks will cohere to the new regulations quickly enough, whilst finding ways to adapt to them, remains to be seen.

As of this month, the revised second Payment Services Directive (PSD2) is in force and set to cause significant disruption within the European payments & banking sector. The first and foremost disruption is the possibility of Open Banking, as the legislation now allows a level playing field for PSPs to operate.

From data and cyberattacks to market competition, there are lots of opportunities and challenges to confront, but are Your Thoughts on the prospects of Open Banking? Below Finance Monthly hears from a record number of sources on the introduction of PSD2, each with a different take.

James McMorrow, Head of Payment Strategy, Global Transaction Banking, Lloyds Banking Group:

It is still very early days. Open Banking is now live and we are working with regulated third parties. What’s immediately clear already, from a client perspective, it has laid the groundwork for a range of new financial services solutions for consumers and businesses.

Saying this, it’s still worth noting that we’re still very much at the beginning of the journey in the UK and Europe. PSD2 is now live, but new payment and account types will be added to the API channels throughout 2018 and 2019 to meet regulatory requirements.

However, what these solutions will look like in practice, who will be providing them and the rate at which businesses and consumers will adopt them is not yet clear. An important consideration for the entire financial services industry will be finding the right balance between ensuring customer security and developing an exceptional user experience.

Winston Bond, Technical Director EMEA, Arxan Technologies:

All banks are now required to share their Application Programming Interfaces, or APIs, to third-party applications, however, many have still not been advised how to do this securely.

The principal weakness in sharing APIs is the simple authentication that is widely used by most API Management Solutions to confirm that the client app on a device is genuine and, has been authorised to utilise server assets. If a cybercriminal breaks through an app’s security and decompiles its code, they could potentially root out the encryption keys. Attackers can then trick the system into recognising them as a legitimate client, giving them access to anything the API is authorised to connect with.

To prevent attackers from exploiting an API in this way, banks will need to ensure they cannot access the cryptographic keys it uses to authenticate itself, by using code obfuscation, for example.

As we’ve said before, the onus really is going to be on the banks. The PSD2 regulation makes it clear that they are responsible for the ownership, safety and confidentiality of their customers’ account data. Consequently, banks are going to have to do everything they can to maintain their well-founded reputation as leaders in security, including creating a united approach to ‘open banking’ as they work on their own solutions throughout 2018.

Gunnar Nordseth, CEO, Signicat:

By providing their users with a safe way to store identities and offering access to these through an API, banks can leverage the trust they have fought to establish and defend.

Unlike physical identity credentials, such as passports and driving licenses, a bank identity API can expose only the required attributes—a business can ask if someone is who they say they are, where their country of residence is, or prove that they are over 18 without needing access to additional irrelevant information. A focus on identity will offer banks an opportunity where previously there was only challenges.

Ryan Wilk, VP, NuData Security:

While open banking will allow a myriad of services for customers to take advantage of, it will also open them up to third-party vendors and therein lies the challenge. Securing the supply chain so that personal information is protected from attacks will take a herculean effort and one that has not been entirely successful up to this point.

The new European directive mandates the use of strong customer authentication (SCA) – two or more identification elements – to increase customer protection. One of the three pillars of SCA is biometrics technology. Physical biometrics provide a convenient authentication layer for customers, and passive biometrics help institutions detect and avoid screen scraping from third-party providers who try to access customer accounts through the bank interface. With a multi-layered approach that includes passive biometrics financial institutions can block screen scraping and provide a higher level of safety to open banking.

Daniel Hegarty, CEO and Founder, Habito:

Open Banking will be a fantastic innovation for consumers. However, with one in five people in the UK classifying themselves as financially illiterate, it also presents a pressing need to be implemented safely and securely. The consent-based data sharing that Open Banking will bring, will enable many to potentially save thousands per year, for example by simply switching from their standard variable rate mortgage, to a fixed rate product. However correct data management is imperative - low levels of financial literacy, mixed with a new ease of financial information sharing, could put some at risk. Financial services firms need to continue to invest in technology and prioritise safe Open Banking implementation, for the benefit of UK consumers."

Alex Bray, asst. VP of Consumer Banking, Genpact:

While this is a potential goldmine for fintechs which want to revolutionise the banking experience for customers, it poses significant challenges for banks which risk becoming a back-office utilities. In fact, a possible outcome is that banks could end up surrendering their direct customer relationships, becoming a commoditised payment back-ends as new aggregators or payment initiators swoop in. For banks to take advantage of PSD2, they will need to find a balance between openness, privacy and data protection. At the same time, they will need to improve their analytics so they and their customers can make the most of the huge amounts of new data that will become available.

Graham Lloyd, Industry Principal of Financial Services, Pegasystems:

As with all regulation, the unstated issue is what’s coming next in the pipeline, be it PSD3 or some other impactful directive. Beyond scenario planning, responding to the unexpected is all about the ability to change processes and technology rapidly and with minimal disruption. They must regularly redefine what it means to ‘promise’ and ‘deliver’, not just generating rich insights, but selecting the right recommendation and next best action within time and budget constraints. Also, operating models and IT should be quickly and painlessly changeable from a single point.

Jeremy Light, Head of Payment Services, Accenture:

Under the new regulations, banks will have to release customers’ financial data, with their consent by a few clicks online or through a mobile app. We found two thirds of consumers were reluctant to share their details with third party providers, and overwhelmingly trust their bank with financial information. Until new entrants to the financial services sector can earn consumers’ trust, banks can draw on their extensive heritage to secure an important early advantage. But, if banks move too slowly to adapt to the open banking landscape, they risk becoming back-end, transactional players, while retailers and third parties become the face of faster and frictionless payments

Victor Trokoudes, CEO and Co-Founder, Plum:

We anticipate a host of new providers coming to the fore in the wake of Open Banking. But these will be different to traditional banks, acting more like advisors to people’s financial life (from saving, to investing, to finding the right financial products). Users will still use their current provider to transact, but will manage everything else via these new wave of “added value” providers that are focussed on offering services that make their users better off.

Jessica Leitch, Principal, Adaptive Lab:

The biggest problem is that banks will start to lose access to their customers’ data. If you’re transacting purely through say Paypal or any other P2P payment platforms the banks not only can’t see what your spending your money on, they also can’t take advantage of overdraft, FX or other kinds of fees associated with financial transactions.  Losing this also takes away the data the banks use to feed their risk models.  Basically, it has the potential to disrupt the banks current prime account model as well as their payments value chain.

Lorenzo Pellegrino, CEO, Paysafe:

In this new world, fintechs no longer have to work within the limitations of legacy bank infrastructure. Instead, they can grasp the opportunity to refine their user experience, making it even more seamless and frictionless. More to the point, open banking — as well as the faster payments rollout in the UK and EU — may well result in card volumes shifting to online bank transfers, creating an environment ripe for disruption.

We also believe that services that allow users to send funds from their bank account in real time will benefit from these developments. And this holds especially true in Austria and Germany, where over 80% of all transactions are still cash- based.

But it’s not all roses. The price of payments is also intensely competitive. For businesses that have already achieved scale, large volume at low margin makes economic sense. For the rest, there will be a need to differentiate based on the ability to keep transactions as seamless and frictionless as possible.

Christian Ball, Head of Retail Banking, GFT:

The APIs of tomorrow will give banks a means to let customers do complex things quicker, such as apply for mortgages at the swipe of a mobile touch screen.

Our latest research confirms customers are excited by the prospect of more personal services, showing that 67% of them would be more likely to take out a loan with a bank if it came with practical advice unique to them. But to achieve the level of innovation required to stay relevant in an Open Banking world, banks need to be able get their customer data in order. Specifically, they need to get better at processing and segmenting customer data, which can be done through greater understanding of transaction metadata. This data can be described as the holy grail to unlocking the customer experience, and being able to use it properly will enable banks to understand what services customers actually want, and subsequently help to uncover new revenue opportunities.

Alastair Winsey, Regional Director EMEA, Thousand Eyes:

When a business’ network becomes unruly and far-reaching, locating the true origin of a problem, degradation issue or even a DDoS attack can take the best part of a day. This is due to the number of third-party providers that cloud computing ultimately relies upon to create an application ecosystem enabling a wide range of services ranging from payments to text and voice notifications. By providing true instant visibility of a complete network path including corporate networks, the internet and connected APIs and Cloud Provider apps, companies can shrink this time from days to mere hours, enabling them to quickly remedy any problems. The dawn of Open Banking in 2018 will make network health a vital component to business success in the finance industry.

Alexander Beattie, Enterprise Director UK & Ireland, Anomali:

From an overarching cyber security perspective, a major concern is the fast-growing number of new organisations who are now authorised to handle sensitive information. Whereas this data was previously held in the hands of a few well-known and visible organisations, under pressure to adhere to regulatory standards and security measures, now the same data will be shared with numerous other, relatively unknown, untested organisations.

This may create a greater chance for fraudulent activity, as Threat Actors explore the weak links in this new enlarged target-rich environment. Undoubtedly, this plethora of new market entrants will be held accountable and will have to adhere to regulation, to safeguard the security of the data they handle. To ensure this they will be investing heavily in the state-of-the-art cyber security systems and processes to try and stay ahead of the curve.

Nick Caley, VP financial services and regulatory, ForgeRock:

PSD2 and Open Banking will democratise the payment services industry by creating more choice for consumers, in turn opening up possibilities for innovation and changing the relationship between consumers and payment service providers for good.

While a lot of the discussion has been focused on how this change will put more pressure on the established banks from tech-savvy fintechs, it is often overlooked that retail banks do have considerable advantages over new players entering the market. For instance, the big retail banks have had decades to build trust with their customers, and they have a strong track record of protecting customer data. This foundation of trust is something that emerging fintechs will need to try and replicate if they are to succeed in the long-term.

Vanita Pandey, Vice President Product Marketing, ThreatMetrix:

Any new payments schemes governing payment initiation service providers (or PISPs) will need to be carefully crafted. Existing payment infrastructures are based on years of heavy investment, with specific operating regulations, settlement protocols, liability measures and pricing structures mutually agreed upon by innumerable parties. Many of the risks associated with a wholesale migration to a new schema can be mitigated by the use of risk-based authentication that preserves the balance between security and convenience.

With all the investment retailers have made in backend processes for one-click payments, it is critical that final directives include provisions for risk-based payments, so retailers can maintain friction-free customer experiences while securing all one-off and recurring transactions.

Camilla Sunner, Managing Director for the Global Partnership Business Unit, Valitor:

When you think about the number of options we now have to purchase goods when we are shopping, it is incredible. On top of that, the process involved in making a payment is highly complex. The fact is, we no longer expect to be faced with numerous decisions in a store or online. We want a simple equation where the consumer buys, the merchants sells, and payments shouldn’t even need to be thought about. PSD2 will help us along that path, making payments quicker and easier by opening up banks’ data.

However, the responsibility for steering this change shouldn’t just lie with the regulators. Traditional businesses need to focus on working together to build one uniform high-tech payments pipe that will ultimately make buying and selling less complicated.

Edward Berks, Director of Banking, Fintech and Ecosystem, Xero:

Open Banking means three major changes for accountants and bookkeepers – better access to digital bank feeds, slicker payments and new tools to empower accountants to predict when a business might need more working capital. The smartest banks and fintech players are already recognising the important role that accountants play in supporting businesses through this transition. Competition for mind-share among accountants will amplify in the coming months as new services and experiences become available across banking, payments and lending.

The most forward thinking accountancy firms, regardless of size, are finding ways to deliver great value and services to their growing client bases by embracing digital.

We would also love to hear Your Thoughts on this, so feel free to comment below and tell us what you think!

There are three core principles for Open Banking. This video explores those three principles and talks about the risks and opportunities involved.

The 3 key principles of Open Banking are:

1. Real time sharing of data, including statements and transactional data

2. Real time initiation pf payments, that allows other organisations to initiate payments for you

3. Information of products and services that allows comparison

Open Banking brings opportunities to work with new organisations and provide consumers new and innovative solutions but also creates new compliance and governance questions to ensure that organisations can protect consumers' privacy and support consumers to get the value out of their data.

Below Felicia Meyerowitz Singh, Co-founder & CEO at Akoni Hub, talks Finance Monthly through the implementation of PSD2 legislation this weekend, with an overview of open banking, what it means for financial services, and what opportunities are in store for banking customers.

It’s been a long time coming but we are entering an era of greater access and better financial services that will finally put the needs of customers first.

The catalyst of achieving this much needed and long overdue result is the culmination of big debate, endless lobbying and necessary government legislation.

For years banks have sat on the most valuable asset to any business: the infinite transactional and financial data of customers that essentially define individual’s tastes, preferences, budgets and - crucially - their requirements for building and planning their lives.

High street banks - reluctant to share their oligarchy of power, held on tightly to this data - unwilling to share it with others - or use it to enrich their consumer experience and put them at the heart of their business model.

With open banking, this power will be wrestled from the big incumbents and data will be available to third parties, SMEs and new digital players. This will lead to a better future for financial services, one that increases competition and creates a greater consumer experience. More businesses will finally have a shot at delivering services that are tailored and relevant to individual customers.

Open Banking will also strengthen the role and influence of FinTech companies that have the agility and open APIs to make data sharing possible and to disrupt the status quo. We have already seen new banks like Starling Bank taking the lead, by creating partnerships with other FinTechs to create a customer rich ‘Amazon of Banking’ experience.

Together with multiple significant other sources of data being made available with consent and through API format, this will finally deliver financial products in a simple and meaningful manner, with automated prompts as companies or market products change, resulting in data innovation and improved financial outcomes, as well as removing the hassle for enterprises, saving time and money.

Key to this is delivering analytics in an easily understandable form without overwhelming businesses - leveraging the rapidly advancing data science technologies, machine learning and AI, as well as outstanding design and user experience is part of the market change we are moving towards. While the UK and EU lead the way, there are early sprigs of global growth for international solutions.

Incumbents are not resting on their laurels. Many banks and financial institutions that make up the global sector are making impressive strides to capitalise on open banking, while also exploring valuable collaborations with new innovators that can help them harness the immense value of their data.

A great example is BBVA, which has embraced the digital movement and has set itself apart from other global offerings and is putting the client front and centre. The Spanish bank has nurtured the development of impressive FinTech firms – such as the digital ID startup Covault- while also making some canny acquisitions to keep it at the forefront of innovation that resonates with a new generation of consumers and keeps them agile and technology focused. This includes the purchase of digital bank Simple.

Open banking also presents some challenges. Exposing large quantities of personal consumer data could increase the risk of cyber-attacks, hacking and identify-theft. The possible reluctance of customers to share their personal data could also derail the initiative. Educating consumers and gaining their trust around data sharing will therefore be crucial to the success of this initiative. So too the need for businesses to share information within a secure platform and for online payment providers to be scrutinised by the rigorous laws in place.

If all goes well, the developments of open banking – and the opportunities they bring to consumers– cannot be overstated. Banks will get another chance at creating better value-added services, while SMEs will finally have the access they need to deliver what their customers truly want and ultimately transform their consumer experience. Additionally, corporates are also now included in the scope of Open banking, increasing pressure on banks to deliver improved services to the neglected business market.

We only hope that customers will see the value of it all to willingly share their data and banks will leverage their relationships of trust to deliver solutions of value to their commercial client base. With their consent, the blueprint for a better future of finance can be mapped out for generations to come.

Below Finance Monthly hears from Managing Director of Equiniti Credit Services, Richard Carter, who discusses the impact of digitalization on the lending market, rising interest rates and his predictions for the 2018 landscape.

Digital fluency and a thirst for convenience are making the UK’s borrowers more capricious and cost-sensitive than ever, says Richard Carter, Managing Director, Equiniti Credit Services, in this collection of predictions for 2018. Interest rate rises, and new regulations will add fuel to this fire next year, and lenders that can’t keep up will get burned.

1. Lowest price wins

In the digitised age of credit price comparison sites, brand loyalty equals bought loyalty. In 2018, lenders must earn their custom by delivering market-beating products. As interest rates continue to rise, the lenders that can drive down the cost of credit stand to prosper the most. Simply reducing margins, however, makes little business sense. But in a rising market there is a balance to be struck between protecting profit and increasing sales. Some may be willing to take a short term hit to capitalise on the rising market conditions, taking the view that volume sales justify smaller margins.

Adoption of automated and agile credit technologies will help lenders to drive down costs, reducing time-to-revenue for new products and enabling savings to be passed on to the customer in the form of more competitive rates.

2. Lenders adjust to curbing enthusiasm

The rise in interest rates are also likely to have a knock-on effect on what borrowers use credit for.

Recent research from Equiniti Credit Services[1] indicates that borrowers’ use of credit is split equally between funding aspirational items such as cars and holidays, and managing existing debt. To offset rising rates, 2018 will see lenders adjust their standard payment terms, allowing monthly repayments to remain consistent. It remains to be seen whether credit will continue to fund aspirational items at the same rate, especially since the falling pound has already driven up the cost of foreign travel and overseas goods considerably.

3. Application declines will no longer mean ‘no’

Regardless of whether lenders adjust their repayment terms, rate rises will still have an impact on affordability assessments, meaning borderline candidates will be excluded from products they once qualified for. This will trigger an increase in declined credit applications, before customer expectations have time to recalibrate.

In 2018, lenders will start to turn this to their advantage. Instead of abandoning the customer at the point of decline, they can automatically identify suitable alternatives, ideally from their own portfolio, or from other lenders. Doing so enables them to protect their relationship and ensures their customer doesn’t tarnish their credit score from repeated declined applications. Agile credit technologies hold the key to this win-win scenario, by providing a whole of market view and matching applicants to alternative loan products instantly, at the point of decline.

In a market where consumers can identify an alternative provider in a split second via a comparison site the ability of a lender to hold their attention throughout a decline and then convert them to an alternative product is a valuable coup.

4. Contact centres will need to be rethought

Equiniti’s 2014 research report revealed that 61% of consumers preferred a telephone call or face to face meeting to explore a loan application. In 2017, that figure has dropped to just 48%. We can expect this trend to continue next year, reflecting a growing desire for self-service applications. In response lenders should be rethinking their use of contact centre resources next year. As simple queries are increasingly resolved online, the role of contact centre staff will elevate to handle more complex queries, and lenders must prepare their resources accordingly. Outsourcing this function to a dedicated specialist partner is a cost effective and efficient way to manage both sporadic call volumes and complex queries, and ensures all calls are handled by skilled, FCA accredited individuals.

5. PSD2 will change everything

Driven by the advent of the Second Payment Services Directive (PSD2) in January, APIs are being opened up across the banking industry, enabling customer-permitted apps and services to access never-before-seen levels of transaction data. Lenders must embrace this new world. Here, data is the new currency, and the combination of customer-centricity and low cost is the key to attracting – and keeping - new customers. The regulation amounts to EU-sponsored digital transformation in financial services, and outsourcers will play a crucial role in helping lenders keep up, stay relevant and harness their use of new data sources to learn more about their customers and get ahead of the competition.

6. Social media data begins to play a part in credit decision making

Thanks to digitalization, the sharp decline in verbal and face-to-face communication means lenders must seek alternative ways to get a sense of who they are dealing with. Social media platforms provide a window into borrower’s lives and give lenders a data source that can be used to contribute to their assessment of an applicant. Sure, social media data will never determine whether to grant or decline a credit application, but as automation and AI technologies continue to be applied to this space in 2018, there is no reason why a lender shouldn’t include social media data in the mix.

[1] https://equiniti.com/news-and-views/eq-views/great-expectations-the-demanding-market-for-credit/

Last week marked one month until the deadline for compliance with Second Payment Services Directive (PSD2). Coming into effect on 13^th January 2018, the legislation will enable consumers across Europe to instruct their banks to share their financial data securely with third parties, making it easier to transfer funds, compare products and manage their accounts.

Currently, the levels of individuals looking to switch accounts is relatively low. Figures by the banking authority CMA highlight that 57% of people have held their personal current account for more than 10 years, while 37% have not switched in more than 20 years[1].

However, opening up the front-end of payments initiation and information services has the potential to dramatically shift the competitive landscape. According to research by Accenture, banks are at risk of losing up to 43 percent of retail payment revenues by 2020[2], as the market place opens up to smaller, more sophisticated digital banks that break the industry’s traditional boundaries.

Pini Yakuel, CEO of customer relationship experts Optimove, comments: “The disruption coming with the Open Banking initiative will have a marked impact on customer engagement. Customers will be able to compare the value that each financial services company offers them quickly and easily. Banks will have a real fight on their hands to retain a generation of smartphone-empowered, brand-agnostic consumers.”

“As the financial services industry grapples with the implications of PDS2, one aspect that remains unaddressed is the need for better communications between banks and their customers. Traditional banks will have to respond to this new, more consumer-focused market, and develop successful marketing strategies to make sure they do not lose customers.

“Understanding behaviours, preferences and needs more clearly is key to developing the kind of emotionally intelligent communication with customers that makes them feel comfortable with their bank, helping them to make good financial decisions. Those banks who can offer something back at each stage of their relationship with each customer will set themselves apart under the intense scrutiny of Open Banking.”

“To keep ahead of their competitors, they will need to tailor services to support customers more effectively, offering real value that appeals to each customer personally. Artificial Intelligence which reveals what value looks like to each customer, will provide banks with a clearer understanding of their customer’s preference and affinities. Enabling them to cater to their needs accordingly and provide true value to each of their customers.”

(Source: Optimove)

Against the backdrop of transformative technologies and the latest regulations, Graham Lloyd, Director and Industry Principal of Financial Services at Pegasystems, identifies for Finance Monthly what types of challenges financial services will have to navigate in their journey through 2018.

Successful social media – The growing discrediting of social media content and its practices comes at an awkward time for banks. The last thing they need is association with anything that could contribute more mistrust to their profile, but they cannot afford to ignore a powerful channel with such reach and strong links to here-and-now impact. It will be interesting to see how banks learn to handle social media with success.

Evolving customer engagement – Social media is just one element of customer engagement and there are far bigger issues on the horizon – digestibility, cost and effectiveness. Data mining is now so huge and its outputs so great that we should perhaps be referring to ‘big insights’ as there are so many of them. For most players, the problem is how to work out which insights to leverage within whatever time and budget constraints prevail.

Time to tackle trade finance – With trade finance risk-weighting kicking in properly in March 2019, we are entering the home straight for finalising the necessary business changes. Most players will presumably look to offset some of the costs of introducing capital requirements in this hitherto largely unweighted portfolio by seeking greater productivity/process efficiencies.

The truth is out about challengers! – Thus far, challengers and Fintechs have been portrayed as somewhere between a benediction and a panacea. The great generic USP – “we’re not a traditional bank” – has helped them weather all sorts of issues from low take-up to sub-optimal IT to almost-but-not-quite products, with scarcely a hard question asked. But the honeymoon period may be drawing to a close, and even in combination, they have still to take any serious market share away from big/traditional banks.

Possibilities of PSD2 – In the final run up to PSD2, there are sizeable revenue opportunities for a bank positioning itself as the ‘destination of choice’ for PISPs (Payment Initiation Service Providers). These new players will gravitate towards the banks offering a higher service standard and the least hassle, as the effects will flow through to the PISPs’ own customers and their expectations of security, certainty and convenience. Banks stand to recapture not only some of their own lost transactions, but also some which have flowed out of their competitors.

Banks that demonstrate low fraud rates will be able to offer frictionless customer experience by escaping legal requirement for extra authentication.

The upcoming Payment Services Directive - due to come into full force in January - has the sometimes competing objectives of facilitating innovation while also strengthening security and protecting customers.

New technology developments in the industry have been known to create sharp increases in the amount of fraud. Losses due to online banking fraud grew by 64 percent from £81.million in 2014 to reach £133.5million in 2015. Yet, high levels of investment in fraud detection and prevention technologies by banks have now helped to reverse the trend - with losses falling 24% in 2016.[1]

The developments under PSD2 will require a new emphasis on tackling the issue. The number of payment service providers who have access to customer data will increase. A greater range of companies will become part of the transaction chain.

Whilst the PSD2 seeks to bring more frictionless transactions for customers, it also includes a legal requirement for payment service providers to use Strong Customer Authentication (SCA) if their fraud detection and prevention rates are not robust enough. Firms will pay a double price if fraud rates increase after PSD2, as they will be required to introduce more friction into the customer experience of payments.

As PSD2 opens up the transaction chain to more providers, Farida Gibbs, of technology consultancy Gibbs Hybrid, warns that banks will have to adapt their fraud detection systems, but can use their fraud prevention capabilities to deliver real competitive advantage.

Farida Gibbs, CEO of Gibbs Hybrid, comments: “As Open Banking creates increased competition in payment services, it will be increasingly important for banks to demonstrate low levels of fraud. SCA, which requires added authentication from the user and can result in customers searching for an alternative payment processor, which is able to process payments without this layer.

“Banks and other financial services firms have put a lot of time and effort into technologies behind fraud detection and prevention. Technology that enables a firm to pick up early warning signs of fraud and promptly send text and email alerts to customers, for example, has been very important in keeping losses to a minimum. And banks have had to implement this despite the challenges of legacy systems and outdated technology processes.

“Their success in reducing the level of fraud losses through online banking is testament to the forward-thinking work that is being done. This will become even more important as Open Banking approaches.

“The legal requirement to put in place Strong Customer Authentication (SCA) will create much greater friction for consumers, but those firms who are able to demonstrate outstanding fraud management will be allowed to use Transaction Risk Analysis (TRA) instead. This has the great benefit of being invisible to customers, introducing no further delays into their payments.

“Analysing transactions behind the scenes for unusual behaviour is not a new method, and is one that banks should be able to adapt to the demands of the new Open Banking environment. The stakes are high – if they can demonstrate success in this area, providers will be able to create a great customer experience for payments, whilst keeping security uncompromised.”

(Source: Gibbs Hybrid)

From Baby Boomers, to Millennials, to Generation Z – as a society we’ve become all too accustomed with categorising people based on the year they’re born in. For banks in particular, it’s long been tradition to segment by age and build campaigns that target customers accordingly. Here Karen Wheeler, Country Manager and Vice-President at Affinion UK, explains to Finance Monthly why banks shouldn’t follow this tradition.

But, have they become too hung up on age groups? We’re now in an era in which we’ve never had more access to rich customer data, which should – in theory – mean that banks can better understand their customers’ behaviour, preferences and expectations. However, according to research by Vanson Bourne and Sitecore, 64% of UK consumers still feel like brands make assumptions about them based on single interactions alone.

Consumers are now easily frustrated by a business that doesn’t seem to understand them. So, what can banks do to prove they have a deep understanding of what their customers really want?

It’s time that banks shifted their thinking and took a smarter approach to segmentation. Basic grouping by age or gender is no longer accurate enough and developing a “segment of one” is key. Here’s three reasons why banks need to look beyond basic segmentation to build better relationships with customers.

1. Broad brushing generations can back-fire

There used to be a predictable life pattern, but now you can get married, have a baby, buy your first house or travel the world at almost any age. The lines are blurring, and things are becoming more fluid. It’s now recognised that just because two people are born in the same age bracket, it doesn’t mean they share the same experiences, needs, attitudes and desires in life.

For example, a 31 year old woman who is married and living in the country with school age children, has very different needs to a single, 31 year old women with a flat share in London. At best, irrelevant offers based on outdated life patterns can be a mild nuisance to customers, but at worst, making assumptions risks causing offence and can backfire on the brand.

Air France recently faced backlash after announcing that it will be launching ‘Joon’, an airline for millennials. Passengers of the airline will be served by cabin crew wearing “basic chic” uniform including white trainers, blazers and ankle-length trousers. Experts have excused the airline of stereotyping millennials and for assuming that every consumer born between the years 1981 and 2000 act and think the same.

2. Personalised offers have more impact

In the past, life stages were more fixed by age, but as society changes and with so much data now available, banks have the ability to build a much more holistic view of their customers which can enable personalised, relevant interactions – giving people what they like most, at the right moment in their lives.

A good example of a bank that’s already doing this well is Barclays. Its “Life moments” strategy is built upon carefully targeting customers with appropriate financial products and services as they approach new life stages, such as having a baby or buying a car – regardless of their age. More recently, Barclays announced it will offer recent graduate job interviewees free overnight accommodation in London, Birmingham and Manchester, after its research found that more than half of graduates surveyed said they had not applied for a job because of the amount it would cost to travel to the interview. By targeting this life specific stage, it positions them as a bank that not only has the best interests of graduates at heart, but a source of help during a time of need.

3. PSD2 is coming

2018 is set to be a game-changing year for banks. As the PSD2 (Revised Payment Service Directive) becomes implemented across the EU, banks’ monopoly on their customer’s transaction data and payment services is about to disappear. The new EU directive opens the door to almost any company interested in eating a bank’s lunch.

Before it’s implemented, there’s an opportunity for banks to use their ‘first mover advantage’. They shouldn’t wait for fintechs, AISPs or PISPs to encroach on their customer relationships, instead they should look at their own platforms and how they interact with their customers. Investing in tactics like better segmentation could improve and consolidate relationships at a time when it’s never been more important.

Many loyalty programmes haven’t worked for banks in the past. But is this simply because they’ve taken an outdated approach to UK consumers and not been personalised enough? Next generation customer engagement is all about tackling this with personalised content and interactions across more levels than ever previously possible. It’s about understanding the intangibles of human motivation to create more rewarding journeys, recognising the value of different rewards to different people and utilising new ways of collecting, storing and making sense of the data that’s generated.

If banks are to become truly valued in their customers’ lives, demonstrating an understanding of their priorities and anticipating their needs is key.