Welcome to the Frictionless Finance Report, our monthly look at everything new in the world of Open Banking, FinTech, and consumer experience. This month we examine the leaked documents from the US Financial Crimes Enforcement Network and how banks can capitalise on bank data.

Open Banking

As the UK Government imposes new stringent requirements on the British populous amongst warnings that we have another six months to endure, it is clear that a return to the old ways of working will not be taking place with any great haste. Indeed, the tone from the Government is at odds with the jovial chord it struck in July when we were offered a Monday to Wednesday discount to save our favourite pubs and restaurants, and were being gently chided for not returning to the office.  

With more severe impositions in place and making for a potentially bleak winter, the acceleration that we have witnessed and written about has a chance to not only continue its aggrandisement, but to bed itself in - “the new normal”, you might, almost, say. 

With that in mind, this month in the Frictionless Finance Report, we bring you news of some positive survey data which highlights that finance houses are indeed taking Open banking very seriously, as well as some top tips for those in the financial sector who remain curious about just how bank data and Open Banking might be of benefit to them.   

New research by Dutch aggregation service Yolt has shown that interest in implementing Open Banking services has not been dented by the Coronavirus pandemic. Nearly half of all respondents (48%) said that there plans to use Open Banking services remained unaffected. Of the 1,000 banking professionals surveyed, 40% said that they did not use any type of Open Banking platforms. Of that group, 80% said they had never considered Open Banking. The survey further showed that there remains significant misconceptions about Open Banking and its place in the financial journey. 

This is backed up by a further survey, reported in Business Insider and DBC Media, which has shown that a 25% increase in those that feel “positive” about Open Banking, with the number rising from 48% last year to 73% this year.  50% of those surveyed expect it will take less than 4 years for their investments to be repaid.  

It would appear that financial institutions are now beginning to understand the potential for Open Banking, and, though sometimes in a limited way, how it could apply within their business. So what should they do? 

There has been a clutch of articles this month that have sought to answer this very question.  

Finextra have approached this from the perspective of how much budget should be allocated to Open Banking. The changing face of banking means that they should be considering changing from being a custodian of money to a custodian of data. This requires a very different mindset, and also technologies, which need to be bought and paid for. Potentially, banks should also consider Open Banking as a tactic to ward off the threat posed by the big tech firms. They write: 

Therefore, if banks have the ambition to become a trusted cornerstone of society once more, now is the time to secure sufficient funding to invest in Open Banking data and API capabilities. By thinking ahead, banks can address not only current, but also upcoming data legislation.

Perhaps, it is not, in fact, the costs that we should be focused on, but the potential pay out once the benefits are reaped. That is the argument put forward in the Financial Brand. They note that there are myriad reasons for using Open Banking, from opening up new revenue streams, to building new products based on data and bringing on board those not yet served by traditional banking methods.  They argue that a clear strategy with defined objectives will be of paramount importance to any bank undertaking an Open Banking project.  

TransferWise’s Lars Trunin has outlined some of the worst that he has seen from banks in the last few years and how to overcome these issues. In AltFi, he comments on such issues as customer journeys that are not designed for Open Banking, reticence from banks to drop old methods and embrace the new, claiming that account aggregation is the end goal for Open Banking, and integrations that don’t work reliably, or at all. 

As always in these pages, we’re keen to highlight some of the latest developments and thinking that shows the new use-cases that Open Banking can be applied to.  

One that has jumped out at us this month, is how Open Banking could be used to overcome the network fees that are routinely passed on in card fees. The Fintech Times has illustrated that over £500m was paid to card handlers in one month of 2020 alone. By using Open Banking, these charges could have been circumvented. 

Matt Cockayne, CCO of Yapily said: 

Open Banking payments come at a fraction of the cost of traditional card fees which represents significant savings for businesses. Not only can these savings be passed directly onto their customers, or reinvested into the business, open banking offers a better user experience which we’ve seen to help increase online conversion rates.

BEST OF THE REST IN OPEN BANKING: 

• Could Open Banking be used to counter information bias, and therefore everyday issues such as sexism? Very possibly write FinTech Zoom. 

• Will the adoption of Open Banking also force firms into the cloud? That’s the question posed by Bank Innovation.  
• The Scotsman newspaper published its annual FinTech supplement with many well-timed pieces, including this one, on why Edinburgh is the perfect place for Open Banking to thrive.  

Read the full article here.