January 2018 saw the arrival of Open Banking, landmark legislation that hands ownership of financial account information and data from the bank or building society to the customer. One year into what was heralded as the start of a revolution in financial services, slow implementation by banks and building societies has prompted criticism that the initiative is more hype than about structural improvement. Yet, this ignores the fact we are at the very start of the journey, and realising the benefits that Open Banking will deliver to customers, providers, regulators and our economy as a whole, will take time.
One of the greatest barriers to the progress of Open Banking has been the variable way banks and building societies have met the legislative requirement to deliver Application Programming Interfaces (APIs). Without well-implemented APIs, it is impossible for regulated Third Party Providers (TTPs), whether an Account Information Services Provider (AISP) or Payment Initiation Service Provider (PISP), to deliver the benefits of data sharing that Open Banking promises.
Having reviewed how financial institutions are implementing Open Banking, we found that the challenger banks were far ahead of all other institutions when it came to delivering APIs. They also provided good working connections for TPPs that in turn resulted in a highly positive user experience as customers were able to see all of their financial information, from investment performance to current account overdraft, in one single place.
This was in marked contrast to some of the so-called ‘CMA9’ including Nationwide, Barclays, Danske Bank, RBS, Santander, Lloyds Banking Group, HSBC, AIB Group and Bank of Ireland. Many of these launched with poor performance on their APIs and complex user journeys.
Change is coming
Behind the scenes, the last 12 months have seen a vast amount of development. Much of this has been driven forward by the Open Banking Implementation Entity, the organisation working with the ‘CMA9’ and Competition and Markets Authority (CMA) to develop the required APIs, security and messaging standards. It’s hugely encouraging that the industry is working together to address, most immediately, the connection issues faced by customers. These have to be addressed for Open Banking to realise the positive change it could have.
To bring this to life, consider how people bank using their bank or building society’s mobile app. While a significant number of people use a secure mobile app that is unlocked by a thumbprint, many of the ‘CMA9’ do not allow customers to use their mobile banking app to authorise access to a TTP, such as a money management app. Instead, customers can only give the TTP approval to access their financial information by logging into their bank online which, for many people who bank via a thumbprint enabled mobile app, requires remembering usernames and passwords that are infrequently used and often forgotten. This can be a barrier sufficient to stop a customer from using a TTP that could best harness their financial data to, for example, avoid overdraft fees or save money on insurance products.
To address the problems associated with connecting financial information to TPPs via apps, at Moneyhub we’ve been working with the Financial Data and Technology Association (FDATA) and the Open Banking Implementation Entity. This has led to introduction of a legal requirement for banks and building societies to support app-to-app data flows, which will enable customers to approve TPPs via their bank or building society app. Essentially, a Moneyhub customer could start a connection to their bank or building society account in the Moneyhub app then be redirected to their banking app to log in, confirm access to Moneyhub then be automatically redirected back to the Moneyhub app. This is means people can quickly and securely set up, connect and manage all of the financial data from one place.
Beyond accessing and connecting financial data, there has also been significant progress in how payments can be made. Customers are now able to receive alerts when close to an overdraft fee, with an option to click to ‘sweep’ money from a savings account to avoid the charges. It puts customers in seamless control of their finances, able to take actions that save money or increase savings returns, based on understanding the implications of variable fees and potential charges.
The future is bright
There can be no doubt that we are at the very start of Open Banking. As we continue to see a wider set of financial institutions from credit card providers, smaller banks, building societies and electronic money institutions release Open Banking APIs, the customer experience will be transformed. Not only will they be able to have an entirely comprehensive view of their finances but also, unlock huge opportunities for the individual and sector alike. For example, lenders making decisions based on credit scores from real-time transaction analysis of current, savings and credit card accounts. It will deliver a true picture of a customers’ financial behaviour and lifestyle that could mean those who might have been declined credit or a mortgage against traditional criteria could now be approved. Using Open Banking APIs, financial advisers could have automatic access to a client’s bank, savings, investment and pension information to thereby entirely automating the fact find and allowing any time with a client to be spent on more valuable advice discussions.
Open Banking has the potential to improve every aspect of our interaction with our finances. Beyond this, we should take inspiration from Australia, where legislation equivalent to Open Banking has powered a change in how consumers interface with the telecommunication and energy industries. Data in the hands of consumers has inspired innovation that begins with the individual but leads to lasting customer relationships and commercial return for the organisation. We are still at the very start of our journey to realising this potential, but the destination is hugely exciting.
Dave Tonge, Chief Technology Officer at Moneyhub