Open Banking is a new collection of new technology and standards that are struggling to get traction, e.g. Jonathan Turner, Open Banking Leader PwC, writes in his Foreward to the PwC report on Open Banking: The future of banking is open - How to seize the Open Banking opportunity, that “if you were to bring up the topic at a dinner party, you would most likely be met with blank stares or apathy.” Yet his report identified how market players can compete, attract customers, and there are huge opportunities ahead, which include:
- £7.2bn: revenue opportunity created by open banking by 2022
- 71%: of SMEs expected to adopt it by 2022
- 64%: of adults expected to be adopters by 2022
- 48%: of retail banking customers state security is their biggest concern.
What is Open Banking and why does it matter?
PwC is a believer in Open Banking, e.g. “Whatever the motivation and the mechanism for its introduction and despite the potential pitfalls, the application of Open Banking principles could significantly change the shape of banking for the better.”
UK’s Open Banking standard’s framework sets out how to develop a set of standards, tools, techniques and processes that will stimulate competition and innovation in the country’s financial sector. (The European Parliament adopted the revised payment services directive (PSD2) to make it easier, faster, and less expensive for customers to pay for goods and services, by promoting innovation especially by third-party providers. PSD2 does provide the legal framework within which the Open Banking standard in the UK and future efforts at creating other national Open Banking standards in Europe will have to operate.
Although the initial objectives of the Open Banking standards were to increase competition in banking and increase current account switching, the intent is continuingly evolving
with a broader focus on areas including reduced overdraft fees, improved customer service, greater control of data and increased financial inclusion.
Potential Open Banking enabled propositions
The potential for Open Banking is huge and unavoidable, “Responding to Open Banking is a non-negotiable” - (CEO, UK Retail Bank). The report identifies many differnt opportunities and the table below shows.
Potential Open Banking enabled propositions (non-exhaustive)
Remember that the report estimated that 71%: of SMEs and 64% of adults are expected to be adopters by 2022. This is a huge opportunity but also a huge threat to current suppliers of services to these sectors, e.g. what if a fintech spotted how to provide a current service and expand it into an area, a service that your company currently provides?
Rethinking banking services
This is a pretty standard list of the potential applications of Open Banking, but many of these potential applications could offer opportunities for improved corporate efficiency, cash flows and liquidity to other companies, e.g.:
- Process improvement
- New identity verification and KYC processes
- Dynamic payroll and faster international remittance services
- Bespoke lending based on spending data
- Cash flow management based on cash balances and future cash flows
- Integrated accounting services, audit and tax planning services.
These services are typically carried out by banks, fintechs and consultancies, but could your company and treasury get inside these processes and add them to an existing service of yours?
Already treasury management systems are linking to personal wallets and downloading details of the balances to enable corporate treasury departments to understand how much spending power resides in these wallets.
How could your company, your corporate treasury department:
- Become involved in your SME suppliers’ or vendors’ cash flows to provide loan or deposit services?
- Provide loan or deposit services to your retail customers?
CTMfile take: Open Banking and PSD2 open up new market opportunities not just to banks, payment companies and fintechs. There could be opportunities for your company too.
Open banking is big opportunity for fintechs
The majority of UK fintech companies see open banking as a major area of opportunity, according to UK FinTech Open Banking Snapshot, a study by EY
UK’s Open Banking Standard here by end of 2016
The Open Banking Working Group has recommended the creation of an Open Banking Standard that will make it possible for banking data to be shared and used securely.
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