It has been one year since the Open Banking rules came into force in January 2018. What is Open Banking you ask? Imagine a world where, through swipes on your mobile phone, you could find a better mortgage, compare household bills, control direct debits and track payments across each of your accounts.
Open Banking rules have made this a reality as they require UK banks to share their current account holder data with third parties through an integration technology called application programming interfaces (API), provided customer consent has been obtained. Third parties such as tech companies, challenger banks and fintech firms can then use the APIs to provide customers with financial services products that are better suited to their needs. This has led to the development of apps such as Chip – which uses an algorithm to analyse a person’s spending and work out how much can be saved per month. It then siphons that cash away into a separate savings pot.
Despite the initial optimism, customer interaction with Open Banking apps remains low. A YouGov Survey in August 2018 found that 72% of UK adults had not heard of Open Banking. Moreover, there is a general nervousness amongst customers about sharing their financial data arising from concerns about security, meaning interaction remains low.
For Open Banking to gain traction in the year ahead, banks and app providers will need to build trust with customers and educate them on the safety of their data. They will need to prove that by sharing this information, an enhanced customer-focussed service will be offered. Once banks and app providers are able to overcome this hurdle, Open Banking combined with artificial intelligence will be a powerful tool that will considerably change the dynamics of how financial services products are offered to customers.
Recent Open Banking regulation has created a new dynamic between incumbents, fintechs and challengers – smart incumbents are beginning to take advantage of this new ecosystem through an open marketplace model.