Has the Competition and Markets Authority (CMA) granted retail banking customers their three wishes: competition, innovation and affordable banking?
In recent months the term ‘Open Banking’ has been getting plenty of air time, both in Parliament and in the media. But what is it, and what will it mean for customers?
There is little doubt that the Open Banking initiative is important as it will help deliver improved competition in the retail banking sector. It aims to create an environment for secure data sharing that will allow customers to make intelligent banking choices, tailored to their specific and personal needs, based on accurate and comparable information.
Providing customers with comparable information is one of the first industry deliverables and is due by the end of March 2017. Many banks already make information about branch locations, costs of accounts and rewards available to their customers, but there isn’t a single way to digest this data across the various competitive offerings. As a result shopping around for the ‘right’ bank account can sometimes feel like a daunting process.
Open Banking will change the landscape for customers. By using a comparison website, coupled with a customer’s own preferences for particular banking products, the intention is that they will be able to simply choose the best banking service for their specific needs.
The next stage of the Open Banking work will focus on delivering an API that, with the permission of the customer, would enable trusted third party apps to provide extra banking services. The API will also allow payments to be made through these apps, broadening the range of banking products available to retail customers, and potentially enhancing financial capability along the way. The use of APIs – or Application Programming Interfaces – is nothing new, we use them every day on the internet and on smartphone apps. It’s the use of APIs to share this data that makes this such a revolutionary step in how we bank.
The way this data would be shared would be similar to how data for payment transactions is currently shared – where payment service providers use robust schemes to communicate payments on behalf of customers. Work is currently under way to understand how open banking ambitions will operate in tandem with regulatory requirements coming from the European Union, for example, the revised Payment Systems Directive and the General Data Protection Regulation.
With FinTechs and other challenger organisations pushing to be part of the retail banking market, the premise behind the success of Open Banking relies on these groups being able to deliver viable alternative products for customers.
It is likely that by offering customers more significant and segmented choices, we will start to see the market transform as a whole, with traditional banks delivering more innovative products in order attract and retain customers.