Open banking is a sleeping giant
Open banking means one thing to me: a way to help people save and manage their money more effectively.
Ever since open banking legislation forced the biggest UK banks to open up their precious data in 2018, many companies rushed to make the most of this. Service providers, retailers and fintechs have been trying to give customers visibility of their data, helping them to understand how they use their money through visualisation tools or make well-informed predictions using machine learning. Round up and saving pots have also been the order of the day to many early adopters who presented open banking apps to the masses.
Open banking remains a mystery
Open banking users in the UK surpassed the one million customer mark at the beginning of 2020, but the reality is, open banking still remains shrouded in mystery for many, with fintechs and businesses having only just scratched the surface of the possible open banking applications so far.
One reason is that open banking is not widely enough publicised and used. Most consumers think they have to change where they bank if they want to use an open banking solution and consumers are more likely to change their spouse than their bank. Secondly, there’s a lot of mistrust around allowing access to bank accounts. There needs to be a concerted effort to educate the public about open banking, what it means and what it actually does for the consumer, which are incidentally all positive outcomes if not overly exciting.
So why is now, more than two years since the UK market welcomed open banking, the time for open APIs to fly? What’s changed? The pandemic and economical crisis have changed people, at least for a while. According to a recent survey by Open Up 2020, almost one in five (17%) have started using an online banking service to help with money management goals since lockdown. We live in uncertain times and it’s front of mind for consumers, savvy or not, to save money and think about spending - more than ever before.
Data for cash exchange
Now, imagine a solution which can improve the way businesses, loyalty, new customer acquisition and cashback are operated. Doesn’t it sound exciting? Insert a new ‘data for cash exchange’ opportunity which will see customers automating their savings through the interface of a few macro trends: open banking, machine learning and AI, retailers’ change in approach and the wider economic impact of COVID-19. This is exactly where I see the potential of open banking. It enables us to facilitate an amazing feedback loop between consumers and merchants who are looking to give their customers a truly omnichannel experience without any friction in the buying journey. Think the Honey extension but on your mobile, talking between your bank and the retailers to feed cashback straight into your bank!
We need to educate - both consumers and businesses about the sleeping power of open banking. Those fintechs and businesses who grasp the ‘data for cash exchange’ opportunity, understand the market changes brought by the pandemic and offer a solution, are going to rise and get attention from both consumers and investors, as they help build a nation of savers post-COVID-19.
This article was contributed by Andries Smit, CEO and Fo under, Upside
Zafin: Banking is now in the era of the tech ecosystem
The development of tech ecosystems is placing the future of post-COVID banking in jeopardy. At a time when Big Tech can replicate the functions of traditional financial institutions, what can banks do to retain a grip on the market?
John Smith, EVP Ecosystem at Zafin, has a few ideas. A SaaS cloud-native product and pricing platform for financial institutions, Zafin is preparing the next generation of banks to cope with this precise challenge.
Smith is responsible for the strategic and tactical management of the company’s ecosystem, including the creation of new business models to support growth and differentiation. We asked him four questions:
Q. Have the events of the pandemic caused an irreversible shift in the digitalisation of banks? If so, is COVID the sole cause or are there other factors?
It’s a great question and one that I am asked a lot. Without a doubt, the COVID-19 pandemic has driven a significant shift in the acceleration of digital. In fact, I’ve seen some estimates show there to have been as much as four to six years of digital adoption growth since the initial lockdown started.
While the pandemic may be the primary reason for this growth, two other drivers include fintech disruption and the high costs of operating a traditional retail bank. Both of these factors have caught the attention of banking executives as they set their minds on accelerating digital transformation with a focus on high return, low risk.
Q. Some commentators believe banks must learn from Big Tech in order to survive. Do you agree? Please expand.
I agree completely; we’re living in the era of the ‘ecosystem’. All the seismic shifts we’re seeing in technology, be it aggregation, embedded finance, DeFi or hyper-personalisation are all enabled by the foundation of an ecosystem.
When financial institutions work with a strategic partner like Zafin, which has made the strategic investments in a best-in-class ecosystem, they’re able to capitalise on opportunities more quickly and safely, and will be better positioned for growth now and at the other side of the pandemic.
Q. What are currently the obstacles to adopting Open Banking? Is it more likely to 'take off' in some regions rather than others?
I would argue that Open Banking has been in the US for some time and will only continue to grow there. By definition, Open Banking is about the secure sharing of financial information that customers are aware of and have authorised. Under that definition, we’re seeing aspects of this well underway even though its full potential remains to be seen.
Third-Party Providers are a natural outcome of Open Banking, whereby they can create propositions beyond what a bank normally does to enable banking functions such as payments, borrowing, saving and so on. Once again, some of these are already present through industry-led initiatives, whereas regions such as the EU have taken the pathway of regulation such as PSD2.
The industry-led initiatives we’ve seen in the US have also had the added advantage of guard-rails that regulatory bodies like FFIEC and CFPB provide. There are also other technology-led initiatives such as API definitions that are set out through the FS-ISAC.
I would argue the future of Open Banking in North America will be through the natural evolution of the guidelines and API definitions that have been published, as well as the natural progression of industry initiatives.
Q. Are there any other bank tech trends you'd like to discuss?
Coreless banking. Zafin has been pioneering some of the work around externalising functions out of the legacy core to drive a more ‘fintech nimble’ bank, while not having to deliver a ‘heart and lungs’ core bank replacement.
Real life examples of this include moving some of the core functions of a banking system, such as product and pricing to a platform like Zafin. Origination, onboarding, KYC, risk, and compliance are all other examples of externalising banking functions for added agility.