At a basic level, Open Banking, which commenced its roll-out on January 13th, is just a data standard. Subject to a customer’s consent banks take a customer’s current account transaction history and provide direct access to this financial data to a verified third-party organisation advised by the customer. The whole process takes place through a set of secure application programming interfaces (APIs). Over the new few years, the initial current account process will be expanded to include credit cards and other financial products.

What can be done with all that data is where it gets interesting. Aided by emerging technology customer’s will have the capacity to manage multiple accounts, loans, overdrafts and savings at different banks, moving money between them and switch services between providers, cherry picking the best deals to suit them. Open Banking will provide a notable threat to a traditional bank model that has sought to increase the number of ‘products per customer’, bringing a new level of competition from other banks and new entrants, along with product and service innovation.

On the face of it good for the customer, not so exciting for traditional banks.

The threat to traditional banks is clear, they have much to lose, both to other traditional banks, challenger banks and technology companies, such as; Google, Facebook and Amazon, which seem well positioned to join the new market

Traditional banks are lobbying hard for a level playing field as Open Banking develops, calling for all companies operating in the financial services space to be subject to the same regulation and controls; Francisco González, executive chairman of Spanish bank BBVA, noted recently; “If I need capital to lend then let’s have the same rules for everyone — for the internet giants too.”

At the same time, it would be reasonable to note that challenger banks often find themselves disadvantaged against their established cousins in areas such as cost of funds. A level playing field may not be possible, not even if it is desirable as Allen notes;

When it comes down to it, we believe consumers wishing to take advantage of Open Banking will make decisions based upon a combination of financial, trust and accessibility attributes. When it comes to money, we believe that trust may have a higher weighting than in other disrupter territories.

It is here that traditional and challenger banks may benefit. Where bank reputations were damaged by the banking crisis, tech companies are experiencing their own problems. The 18th annual Edelman Trust Barometer published in January 2018, showed that trust in social media, sometimes considered the bastion of free speech crashed to just 25 percent. Associations with; fake news, a lack of content control, Russian election meddling, anti-competitive behaviour and tax avoidance and wider ‘Big Brother’ reach will for some be unwelcome.

Open Banking has just begun a ‘managed roll out’. As it joins with GDPR and concerns centred upon data privacy and media manipulation, interest in ‘hearts and minds’ could well be as important as interest earned or charged.

Allen Jones, Managing Director Copernicus

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