But does this mean that Fintechs have the ability to access information and initiate payments and other services safely and securely?
What we do have with open banking objectively is transparency, control over data and the promotion of innovation. In the UK we can now compare bank accounts with other banks, see all your accounts with different banks in one place and view a balance or make a payment on another web site. Open banking will operate with the ability to share data, make payments through another website or application, transferring to the banks secured website and being asked for your Internet banking login details. An example is giving consent to an application to get access to account and savings account data at Coventry Building Society in addition to the joint Barclays account you hold with your partner.
Put simply: applications (which are regulated by the FCA) will be able to aggregate data with everything on one screen to compare or make savings on financial products and utilities.
However, there are those who are worried obviously about who will compensate you if something goes wrong? There is criticism by Fintechs that the four largest banks in the UK could be vulnerable and be a victim of fraud due to their legacy estate. On the other hand, the £20 million-backed Fintechs will be blamed by the banks for any financial loss. So these Fintechs are putting insurance contracts in place to mitigate the risk of fraud. There is the strong concern of websites posing artificially as the bank or the third-party Fintech. When you share data with another Fintech it becomes their responsibility to store and use the data safely and NatWest, HSBC and Santander state in their own terms and conditions that the customer is responsible for checking these third parties.
It is the regulators which have driven this move to Open Banking, so the accountability or management of risk will be placed back on them. We must remember all complaints are the accountability of the Financial Omburdsman, and if a third party Fintech goes into administration, the Financial Services Compensation Scheme (FSCS) must manage customers compensations.
We must embrace this innovation on Open Banking and banks can now take advantage of new SME propositions other than just payments as they will have access to third party data and understand customer motivations. Accounting information, banking information and access to credit data through Experian will mean decisions on loans can be made more quickly and accurately. First Direct has partnered with Bud to see their accounts in one place and HSBC has asked its customers to trial its new application called “HSBC Beta” which allows you to add up to 21 different banks and view current accounts and loans in a single view.
There is a future of huge disruption in the industry and the retailers now have the chance to offer more cost-effective services by taking payments directly from a customers bank account. This eliminating credit card companies and “merchant acquirers” which underwrite card transactions and charge fees accordingly. Some Fintech’s, like Plum which provides savings accounts, will be successful under Open Banking with application that offer customers an affordable amount to save and then deposits money for them. The challenger, Starling Bank, for example, has PensionBee. This API pulls a pension balance into their application when customers give permission to share that data.
Currently, there have been no propositions offered by the GAFA on Open Banking, but it could be these firms which manage your money and the banks could be regulated and be responsible for your monthly income. Banks will become plain old utility providers – as is already the case in China whereby the banks have come under competition from WePay and its social media platform, WeChat. Simiarly Alibaba’s AliPay payment service.
Open banking is the catalyst which will only drive more lifestyle services. Comparing energy bills is just the tip of transformation in banking. Banks must understand their customer’s motivations and offer services outside the traditional operating model partnering with the Fintechs, retailers and other organisations that affect people’s everyday lives.