On Friday the 8th of February, Hi Mum! Said Dad hosted a roundtable lunch with senior representatives across financial services businesses to discuss the vast opportunities Open Banking affords us and whether 2020 is finally the year for mass adoption. The conversation was focused on the propositions that could potentially change the game, how big incumbents perceived the threat and some important factors for success.
PWC’s 2018 report “The Future of Banking is Open” is frequently cited as go-to predictions for impact on the market. The thrust of that report is that by 2022 - Open Banking will be worth 7.2bn. The lion’s share of that sum is marked as “revenue at risk” at 5bn. That is, revenue that new entrants could snatch from incumbents.
In fact, only 1.8bn is set to be incremental revenue gained from operational efficiencies or activating latent customers.
So the message is clear, incumbents better not lag or they will suffer new entrants eating their lunch. But how much of this have we actually seen?
These predictions were predicated on compelling propositions hitting the market and activating the expected target market. Did this materialise? Are incumbents taking this threat seriously?
With this in mind, we invited 14 senior representatives from Snoop, HSBC, RBS, Banked, Anthemis, Tesco Bank, IG Group, Schroders and Carbon Vault who contributed to a lively session with many ideas and opinions flying across the table.
1. The evolution of open banking:
We are increasingly seeing a focus on ‘single point’ solutions such as eligibility checking and credit scoring but there is also now generally a feeling that the maturity of the underlying infrastructure means the space is ripe for the next wave of direct to consumer mass market propositions. Snoop, who joined us at the roundtable, is one of the emerging players in this space.
2. The benefit of being an independent third party:
Those leveraging open banking should double down on the fact they aren’t a bank - i.e. they have the ability to connect the dots for consumers and provide insights and recommendations that would be at odds with a traditional bank’s incentives.
3. Consumers might not be as concerned as initially feared:
Concerns around account linking and security seem to be overblown. The experience of the room was that consumers are comfortable with this but the real concern is data management - “how can I keep track of and manage who has access to my data?”
4. Focus on consumer benefit rather than ‘Open Banking’:
There exists a general feeling that open banking is a slight misnomer and may suffer from a bit of a stigma. The appeal doesn’t lie in open banking itself but rather what it allows a customer to do. If a customer has the house of their dreams in their sight and providing access to their data can allow a lender to underwrite and get them to offer quickly, this is a compelling reason for giving up one’s data. The importance of articulating the value exchange will be key.
5. Greater coverage is necessary:
The picture is still incomplete without other accounts such as mortgages and pensions. These products relate to key milestones in peoples’ lives and without these elements, Open Banking doesn’t feel as powerful or as helpful as it could be.
6. Financial inclusion:
There was some debate around whether the greater availability of data will lead to less financial inclusion because banks have more information to discriminate with or greater financial inclusion because they will be able to price risk more effectively. There exists a large untapped market so it will be interesting to see which way this goes and whether the FCA will feel the need to step in.
7. VCs are key players:
Open Banking is uncharted territory and extra patience will be required from VCs as start-ups in the space may take longer to prove out their economics and their path to a viable commercial model. This will likely be a long and treacherous journey so start-ups would do well to find investors who understand this and are in it for the long haul.
8. One mistake could ruin it for all:
Open Banking is still in its infancy and there is a sense of fragility around the initiative because it only takes one piece of bad PR to halt any momentum that may have been built up.
9. Lest we forget, the UK is a world leader:
Whilst it can feel like Open Banking has been around for a while and is still yet to really take off, it is worth remembering that the likes of Canada, Singapore and South Korea have looked towards the UK for inspiration as they aim to lay the rails for their equivalents. The UK is considered the gold standard and 2020 could be a watershed moment.