On Saturday 13th January 2018, a small revolution happened in the UK banking market.
Few consumers would have noticed any change, but the direction of the industry has been changed forever – Open Banking launched in the UK.
This was an initiative developed by the Competition Markets Authority (CMA) back in 2016 to stimulate more competition in the retail banking sector. A review of the industry back then concluded there was insufficient competition in the sector, with smaller and newer banks struggling to grow or attract customers, resulting in too many customers paying more than they should do for banking services and not benefiting from new services.
As early as 2014, the CMA started looking at the competitiveness (or lack of) in the retail banking sector in the UK.
The FCA, the UK’s financial regulator, hopes Open Banking will drive competition, bring down costs and lead to innovation in banking services.
The UK’s Open Banking initiative launches alongside the Second Payment Services Directive (PSD2) from the European Commission, which rolls out the new data-sharing rules across the EU, although some countries, such as the Netherlands, have not yet made it law.
I have written recently about 2018 being the year of “regulated disruption” as regulations such as Open Banking and GDPR come into force.
On Saturday, the launch of Open Banking was lightly reported (because there is not much to “see” with the change), and I was quite surprised by how negative some of the reporting was.
The Daily Telegraph had a front-page story – shown below with the alarmist headline “Open Banking ‘will open door to hackers’ – and required three reporters to bring us this chilling news.
Other outlets such as The Sun predictably forecasted a “Hack Attack”.
Strangely the Chairman of RBS, Howard Davies was quoted as saying “We are not confident that our customers’ data will be protected from hackers and thieves [when it is shared with third parties].”
“We cannot refuse to hand over data because that’s what the legislation says, but we will have to try to educate people to understand the vulnerability.”
Also quoted was David Crawford, head of current accounts at NatWest, who believes the launch of the scheme could cause confusion for customers – and hackers will take advantage.
He said: “With all the new companies expected to launch propositions, customers might not be aware of which are genuine and which are run by criminals, and so be at risk of giving away details or even money.”
This type of reaction from the banks themselves makes me think that they have been dragged kicking and screaming into the 21st century, rather than it being something the banks would have done had they not been forced to by regulation.
In contrast, Wired magazine has been running some well-written stories over the last few months giving a balanced view of the risks and opportunities from this new platform.
What it means for consumers
Open Banking will bring real choice in the ability to hold our money with whichever provider we wish and gather and present our total financial picture in the one place. It also means that nimble FinTech companies will be able to process and present our financial data in ways our current banks have never considered, providing us more insights into our financial affairs.
I see a number of smart “rules engines” popping up – eg if my HSBC account is > £2000 AND my rent is not due for 3 weeks, automatically pay off my credit card. It will start the personal data revolution that I speak about often, where consumers will start to take back control of their data.
Below is a quick 2-minute video where I explain how consumers will benefit from controlling their own data.
We will start to see some of these innovations in the coming months, and I for one can’t wait to claim back control of some of my data, allowing me to view it and analyze it myself (or with the help of a smart app).
What it means for the industry
Notwithstanding the reluctance prevalent in the comments from the RBS Chairman, the industry will start to see that consumers want more information on their finances, and by giving us access to our own data, we can start to make more sense of it. Does it mean that it will be easier to compare and switch banks – yes! This is good for the industry because they will have to develop more compelling products and services to keep us.
I remember back when Automated Teller Machines (ATMs) were launched back in the late 1960s. Bank Chiefs could not understand why people would want to take their money from a “hole in the wall”, rather than visiting their grand bank branch. Ironically, the use of ATMs is dramatically reducing as consumers transact their finances online.
The move to online services will accelerate digital disruption, and will no doubt lead to bank branches being closed.
Natwest even overly say they will be closing down branches in the ad below, saying that “the way you bank isn’t like it used to be. It has changed.” They allude to the promise of open banking with the phrase “we’ll keep on creating more ways for you to manage your money, wherever you chose”.
What should you do?
My view with everything new is that “to get digital, you need to be digital”. As such, being an HSBC customer I have applied for the new HSBC Beta app which will take advantage of many of the new features available from the Open Banking rollout.
Are you excited about the promise of an open banking platform revolution?