This article summarises three main reports regarding open banking. To keep the narrative succinct, technical details of open banking are left aside as the article is aimed at the implications for different stakeholders. The reports discussed are published by Barclays, Deloitte and Pinsent Masons.

OPEN BANKING – A CONSUMER PERSPECTIVE

• Publishing entity: Barclays
• Author: Faith Reynolds
• Date of publication: January 2017
• Topic: PSD2 (EU) and Open Banking (UK)

Report introduction

Faith Reynolds wrote the report to engage consumer groups in the debate about open banking, based on the perceptions of multiple consumer experts. In the report, the author delves deeper into what open banking is, what the benefits and risks are and what the future holds for consumers. The topic is viewed from a neutral stance, representing its potential impact on consumers and SMEs.

What is open banking?

Open banking has three main implications for the current banking landscape. First of all, it enables people to share their financial transaction data more easily with third parties. Second, it allows third-party providers (TPPs) to initiate payments directly from consumers’ bank accounts. Finally, open banking makes bank product information public, along with other related customer satisfaction scores and service indicators.

The benefits for consumers and SMEs

By aggregating tools, Personal Finance Management platforms will make money management more convenient, simple and fast. Combining these services with price comparison websites will make the selection of products and services even more convenient. Another benefit is that people will gain access to previously unavailable products, such as a more transparent credit scoring. Also, the emergence of marketplace services or digital comparison tools lower market entry barriers for new products and services.

The risk for consumers and SMEs

Convenience, speed and simplicity may come at the expense of a loss of control over money, reduced privacy and a more complex marketplace. Conflicts of interest may arise from commission based business models due to the lack of transparency. Asymmetries of power might emerge, potentially raising concerns regarding data sharing, control and security. Finally, key risks for consumers and SMEs are digital and financial exclusion due to a lack in digital capabilities, as well as data integrity and ethical questions.

Where next?

Open banking requires input from everyone, as the its issues are significant and uneasy to address. Difficult trade-offs must be made. Areas that require action, as defined by the author and interviewees, are leadership and coordination; competition and disruption; consumer protection; data and society.

How to flourish in an uncertain future – Open banking

• Publishing entity: Deloitte
• Authors: Margaret Doyle, Rahul Sharma, Christopher Ross and Vishwanath                                       Sonnad
• Date of publication: July 2017
• Topic: Banks’ role in open banking

Report introduction

In the report, the threats and opportunities faced by incumbent banks are explored. The authors list the potential roles to be taken on by banks and how they can adapt onto the drastic change in playing field ushered in by open banking. The report is mainly aimed at banking representatives, preparing them for what is yet to come.

Market context

The recent upsurge of fintechs threaten banks’ business models as we currently are familiar with. Fintechs are likely to concentrate their efforts on segments where high customer inconvenience is combined with large profit pools. The innovations with the highest potential have the greatest ability to make use of customer data, are easily deployed across platforms and don’t require extensive regulatory capital.

How will the retail banking market evolve?

In the long-term, the authors expect open banking to facilitate a much larger impact, transforming the retail banking business model into marketplace banking. In marketplace banking several financial services providers continually compete to offer customers tailored, good-value products on a data-intensive, platform based marketplace. Thus, traditional banking services are augmented by a variety of ecosystem providers.

They continue by stating the opportunity that banks will have to become platform providers for other, adjacent, services that involve multiple stages and providers. This way, banks can centralise these stage via a single interface, providing a seamless holistic customer experience.

What will incumbents need to do to thrive in an open banking future?

Banks will need to have the ability to exploit and use customer data to create innovative and more individually tailored propositions. To encourage the required experimentation, a ‘fail fast and learn quickly’ mentality must be adopted, as well as an agile way of working.

Ultimately, incumbents will need to reshape their organizational structures and cultures from top down, as innovation will need to have a place at the heart of the business. To work effectively in the new forming financial landscape, banks have to adapt to the agile way of working that is commonplace within fintechs in general.

The Future of Open Banking, beyond January 2018

• Publishing entity: Pinsent Masons & Innovate Finance
• Date of publication: November 2017
• Topic: Open banking implications for banks and fintechs

Report introduction

Pinsent Mason’s report discusses the opportunities created by open banking and how banks and fintechs can benefit. Additionally, they discuss the format of future business models and the interaction with other legal change. Innovate Finance strengthens the role and influence of fintechs in the report as well. Ultimately, the report gives an extensive, deep dive into open banking and its impact on the business side.

Opportunity

Open banking offers great opportunities for a large range of businesses to innovate, strengthen ad gain a share of new emerging financial products and service markets. Initially, collaboration will be at the heart of open banking. For fintechs, brand value and trust acquired by partnering with established players is key.

Banks, fintechs and other businesses entering the payments markets for the first time can gain significant market share if they can adopt a business model that incentivises adoption of their services by retailers and consumers alike. Few people really care about the technicalities involved in how they initiate and execute payments as long as the process is smooth.

Market share

Trust is a main priority as new payment services must gain consumer trust through sound data security practices to succeed. Also, innovators in payment services must go beyond providing youth for customers in they want to convince all ages to adopt their services and become mainstream.

Robust liability models and dispute resolution mechanisms are vital to the success of open banking as fraud, financial crime and identity theft risks should be addressed properly.

Regulatory issues

According to the report, everyone largely agrees that secure, open APIs are the best way forward from a technical standpoint. However, as PSD2 does not mandate open APIs, a solution fitting all is yet to be found.

A model of governance that gives fintechs a greater say on future open banking reforms that is practical and funded fairly is challenging, yet necessary to stimulate a broader representation for how open banking standard should be governed in the long term.

Open Banking in 2025

Some envision an app store for new payment services, robo-initiated transactions and credit card payments a thing of the past. Others view business resilience risks and data protection regulations as potential innovation brakes. General viewpoints envision that banks will have to become account information services providers (AISPs) and payment initiation services providers (PISPs) to remain competitive. Other industry players predict that interaction with financial services will be abstracted by several layers and app store style marketplaces will provide a single point of access. Ultimately, payments will require minimal input from consumers and services will start to consolidate in a single point of access.

By Michael Brooijmans, Research Analyst at Holland FinTech