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By Dennis Collet, Business Consultant at BJSS
To appreciate - and even just imagine - the true potential of Open Banking, we must look beyond the obvious ways we currently interact with and consume financial services. As mentioned in my previous post, Open Banking seems still to be the best-kept secret rather than creating seismic change. I believe one of the main reasons why Open Banking has not taken off yet, is that ground-breaking products aren’t available yet. I cannot see that any of the current products and services, that launched under the Open Banking moniker, have delivered any meaningful innovation.
To appreciate - and even just imagine - the true potential of Open Banking, we must look beyond the obvious ways we currently interact with and consume financial services. In this post, I will explore five of the most innovative solutions and how they have been made possible by Open Banking.
The much talked about Account Aggregation provides the ability to see all your accounts in one place. This might increase convenience, but it isn’t ground-breaking.
But what would deliver real benefit to consumers is the ability to aggregate account information to automatically move funds between the accounts. This would enable them to avoid charges and maximise the benefits to the customer.
Proactively helping customers to avoid charges or boost their savings by automatically moving money between various accounts, or at least prompt via notifications and enable customers to act, could be a great advantage. This could also be offered in complementary markets, e.g. utility, council tax and phone bills.
A fallout of Account Aggregation has been the rise of various budgeting tools. Varying in complexity, they break down spend data - from high-level daily expenditure to very granular information such as how much you spend on your daily coffee each month.
Whilst its potentially eye-opening (or terrifying, even!) to see that the £200 you spent on Starbucks last month equates to almost £2,500 a year, or sliced another way - a luxury holiday in the sun, these are passive tools limited to what has occurred in the past. Some, more sophisticated, tools can predict future outcomes based on past behaviour – but even this is lacklustre.
So, how could Open Banking take this to another level? In my view products and services must leverage and deliver hyper-personalised services. More importantly, those products and services have to provide initiatives. For example, what if a service proactively offered an alternative that saved me from my caffeine fix, and served me with offers and discounts to tempt me away from my £2,500 a year caffeine habit?
Another talked about a product to benefit from Open Banking is mortgages. Players like M&S are already using Open Banking to automate salary verification calculations. While this certainly accelerates the application process, it doesn’t change the fundamental approach to buying a house.
What if lenders were to proactively offer mortgages tailored to specific properties instead? Homebuyers could search for properties on their favourite aggregators such as Rightmove, and immediately get tailored mortgage quotes by taking my savings, current spend, income and trajectory into account.
Many consumers are unable to qualify for a credit line because they have a limited credit history. Open Banking remedies this, by providing evidence of regular on-time payments for ongoing commitments such as rent, consumers can convincingly demonstrate their payment reliability.
The next step is to analyse individual transactions across all financial accounts and providers – including interest and overdraft charges. This allows providers to offer value-adding alternatives such as personal loans.
This could be marketed and offered directly through a mobile banking app in the form of banner advertising and push or pull notifications.
Several services already exist to support financially vulnerable consumers and those caught in a debt spiral, with a view to helping them rebuild their credit score.
Open Banking technology has the potential to replace the current “dumb” payment plans, with new services that provide highly tailored repayment plans. Those repayment plans, which will rapidly help consumers to become “un-stuck”, would automatically split and allocate payments to the most expensive debt, ensure that minimum payments are never missed. It also has the potential to include automated switching facilities, allowing the consumer to benefit whenever better deals become available, or if their improved credit rating enables them to qualify for cheaper facilities.
In summary, whilst we have seen emerging new and innovative products and services on the back of Open Banking, we have barely scratched the surface of what is possible. In order to achieve mass adoption and convince consumers to share their data, the value proposition has to be more compelling and deliver clear value to consumers. The race is on and it will be exciting to see who and what will be the first true game changer.