9 August 2017
From January next year, British consumers will be given effective ownership of their own banking data and with the ability to give permission for it to be used by other financial services firms.
The EU-wide initiative is being enthusiastically embraced by the UK. While potentially very empowering for consumers, the UK Government is also driven by a strong desire to increase competition in banking. As such, the new requirements are being encouraged by the powerful competition regulator, the Competition and Markets Authority. Most major UK banks have already opened up their general data around current account and business banking – having helped create a central Open Banking website where software developers can register to access and utilise the data.
But from January next year, things move up a gear. To quote the Open Banking website “In January 2018, Open Banking, working with UK banks and regulators, will release APIs and standards that enable organisations – with the customer’s permission – to read the transaction history of Personal and Business Current Accounts and initiate payments from those accounts.”
At Space, we are convinced it is this next phase that has huge implications.
Earlier in the summer, we wrote about the topic and what it might mean for IFAs on the Professional Adviser website.
As we noted then, there is a very strong likelihood that advisers will be able to pre-populate fact finds getting closer to the ‘portable fact-find’ that has been talked about by the industry, technologists and regulators for the best part of two decades.
We also think a wide range of financial firms could see their businesses revolutionised. We have put out heads together and list six areas of financial services where we can envisage huge innovation and disruption.
Six possible open banking innovations
Insurance underwriting – with a prospective policyholder able to provide instant access to their financial data, we see the scope for a big reduction in underwriting times. An extension of the principle of a consumer owning their data, say for example concerning their health, could revolutionise the process.
Mortgage approvals – the mortgage industry can sometimes struggle with evidence of someone’s financial situation – demanding bank statements and more – even within the same bank! We envisage much faster and more accurate approvals where the lender can gain a much clearer picture of affordability and ability to pay. It could also help with non-mainstream lending, for example, to the self employed.
Digital and hybrid advisers – much of the move towards digital advice uses technology to enable low cost investing while employing Artificial Intelligence to ask a series of increasingly sophisticated questions of investors. When clients can allow their adviser to import their financial data into their systems, another significant part of the advice and investment process can be automated. Whether boosting the digital-only players or reducing the time and costs for on-boarding clients, it should reduce ‘cost to serve’ significantly. Combining this with a successful Pension Dashboard project would really transform the advice landscape.
P2P lending and crowdfunded investing – Established platforms will seek to utilise open banking data to improve the information available to potential lenders and investors on these platforms and help them assess risk much better.
Security – There are downsides to the open era. We know many consultancies are beginning to advise clients on the data security implications. Yet there may be a gap in the market to help customers manage the security of their data. Whether that is, for example, a Paypal type of firm, an Experian, or a new start up remains to be seen.
Banks as open platforms – we can see clear benefits to the 30 odd bank or bank-like challengers in the UK, but given that is an innovation that already exists, we wonder if we might see some of the bigger banks attempting to convert themselves in broader platforms, which offer better products and services to individuals and businesses in this era of open data. Banks are giving serious thought to how they turn what looks like a competitive challenge to their advantage.
And finally – As we say, these are a few thoughts resulting from the team at Space putting their heads together to consider what open banking really means for Financial Services. We’ll be keeping a close eye on how things develop in practice from early next year. In the meantime, if you have any views on the subject or want to chat further about its implications, please get in touch. We have included some useful links at the foot of this article.
Useful links:
Paul Lindsell on the implications of open banking for advisers on Professional Adviser
The open banking website: https://www.openbanking.org.uk/
Open banking has released a new payments API for developers to work on in time for next year’s release reported on Finextra.com
https://www.finextra.com/newsarticle/30791/open-banking-releases-payments-initiation-api-for-uk-bank-data-sharing
Danske Bank, which has banking operations in Northern Ireland and across Northern Ireland, gives its view about a seismic shift and its plans
http://www.bankingtech.com/894291/danske-bank-launches-open-banking-beta/
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