Open banking has attracted its fair share of criticism – some of it justified – but open data will become the norm within a matter of years, predicts Marilyn Cole, and it is for the financial services sector to show it can handle it

As a technology and design consultancy, we are naturally great supporters of tech and what it can do to help adviser firms and other financial services companies run their businesses better. As such, one reform that has really caught our attention in the last few years is the open banking initiative.

Our enthusiasm is based on the fact this new legislation is less about prohibiting things and more about increasing autonomy for customers and – hopefully – markedly improving competition in the process.

While driven by the powerful competition regulator, the Competition and Markets Authority (CMA), it is at least partially down to the second version of the Payment Services Directive (PSD2) from the European Union. As with a lot of regulations these days, there is some debate about how much is due to Europe and how much to the UK.

Whichever regulator is mostly responsible, the idea is that consumers and clients will take ownership of their data and financial history, which has, up to now, been closely guarded by their banks. This holds out the possibility for new lenders and insurers to engage with new customers much more efficiently and, in terms of their financial data, accurately. This should eventually apply to advisers as well.

Whether or not that means portable factfinds become much more of the norm, open banking and related regulations and projects – including the General Data Protection Regulation and perhaps the pension dashboard – should mean clients can ‘dock’ with IFAs, digital advisers and their associated platforms in a much more effective way.

Yet as advisers are finding with all manner of regulations in 2018, it is far from all plain sailing. Open banking launched on 13 January 2018 not with a bang, nor a whimper, but with a cacophony of complaints, warnings and delays.

Just three banks out of possible nine were ready to start on time and, with permission, allow access to customers’ current account information. Other high street names among the nine asked the CMA for anywhere from a few more weeks to another year to comply.

At the same time, a host of stories in papers such as the Telegraph, Guardian and Mirror began to suggest that just about anyone could gain access to your data.

Gareth Shaw from consumer campaign group Which? said: “While open banking has the potential to offer consumers more control of their finances and boost choice, it also comes with potential risks around data privacy and security. Regulators and industry must ensure that customers are protected from data breaches.”

Some of the banks joined in – for example, this warning from NatWest was quoted in the Guardian: “A scammer could hack into a third party provider to gain access to information held in current account statements or pose as a third party in correspondence to extort information. This could then allow them to fraudulently access customers’ money.”

Indeed, this is a persistent criticism – that data aggregators and/or application developers, which may offer money management and budgeting tools, are likely to be small and therefore easier to hack. One survey of bank customers carried out late last year by Accenture duly found two-thirds did not want to share their data.

Finally, thinktank the Financial Inclusion Centre has put together a lengthy report entitled ‘Beware of Geeks bearing gifts’ with longstanding consumer rights campaigners Mick McAteer and Gareth Evans arguing the fundamentals of financial services are not going to change as a result of technology – except perhaps to offer new ways to fleece and/or scam customers.

The report offers a list of numerous risks and detriments from across the whole fintech and financial services landscape. These included outright scams and fraud; greater difficulty in securing rights and redress; higher costs; greater value extraction; major conduct of business risks; transition risks; disruption of established financial services; greater financial exclusion and discrimination; and corporate governance, cultural and regulatory risks.

It adds: “Open banking and the coming into force of PSD2 presents a serious imminent risk, which regulators, the financial services industry and consumers are not prepared for.”

We must admit this all sounds less like a brave new dawn and more the usual drizzly evening but have these bleak assessments cooled our ardour for the project? Actually, no. We would not dispute that a lot of technological developments have seen two worlds collide – that of free-styling fintech and tightly regulated financial services.

Bridging The Divide

And yet financial services companies are increasingly developing systems to bridge this divide, taking the best of one world and adapting it for the other. Indeed, it is a key part of what consultancies such as Space do.

Our firm has evolved with the changing financial services market. The focus may well be on user journeys much more than printed marketing material these days but, while we embrace technology, a lot our work still involves getting the compliance right.

We are less cynical about adoption by the public. A compelling data driven offer could well tempt people. Another survey by PwC suggested, for example, two-fifths (39%) of bank customers might be prepared to do so in return for benefits such as an overall view of their accounts in a single app, or being able to compare tailored product offers from third parties.

So the tech and data revolutions can move in fits and starts and it may be a case of the market waiting for the right offer. We suspect the next big change may be in attitudes, as consumers increasingly become aware they can control their data practically and legally.

There are clearly very legitimate concerns about safety of data, of course, and we would like to see the regulators – the CMA, the Financial Conduct Authority and the Information Commissioner’s Office – get together to thrash out where and how redress is dealt with if things go wrong.

Open data – specifically applying to banking but also more generally – will, we believe, become the norm in the next five years. We would not ignore the critics and naysayers and happily take some of the warnings on board. The opportunity is there, however – and now it is for advisers and their partner firms to demonstrate they can handle it sensitively, fairly and securely.


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