When you think of your bank, what are the words that spring most readily to mind? MT of course is a family business website so we will draw a veil over some the saltier responses that might result. But even so the chances are that the quality of openness wouldn’t figure highly amongst the responses.
And yet Saturday January 13 is Open Banking day – the day that the UK’s nine leading lenders are supposed to be ready to open up their customer transactions to third party providers – and there has been a flurry of excitement about what open banking is and why it might matter as a result.
Boosters say that Open Banking will drag lenders into the 21st Century and unlock a world of friction-free mobile-enabled financial services which will make today’s options look about as sophisticated as a pair of soup tins and a bit of string compared to a slinky new iPhoneX.
Imagine an app that would monitor your spending and help you save more, for example. And one that would then move those savings around to get the best interest rates. For entrepreneurs, automated credit control and invoicing might be even more enticing, or cashflow management. Loans and even sophisticated financing options all done in minutes on your smartphone.
This is the sunlit financial ecosystem that open banking is intended to produce, a customer led competitive market in which banks and their hidebound ways are relegated to infrastructure players, looking after the money and the plumbing required to move it around, with the customer relationship and innovation coming from the app providers instead. There's a long way to go yet admittedly, but tomorrow is the first big step on the journey.
Critics on the other hand point to a cloudier outlook, claiming that granting third party access to our bank account data is a hackers' charter and will result in a splurge of security breaches the like of which we have never seen before.
The truth will probably lie somewhere in between – there will likely be new security challenges to be met, but these will be offset by the usefulness and desirability of the new products and services on offer. The lessons of history being that convenience and utility always defeat safety concerns in the end – passengers on the first transatlantic flights were literally taking their lives in their hands, but now we barely give airline safety a second thought.
Open Banking is happening because of new legislation, the most pertinent law involved being the snappily titled Second Payment Services Directive or PSD2. An EU law, PSD2 is being implemented in the UK by the Competition and Markets Authority. And it’s the CMA who set the Jan 13 deadline – a deadline which a number of the big nine lenders will miss, because they have struggled with the technical challenges involved. Bless. With many more milestones yet to come before open banking is fully operational, the timeline could slip quite badly.
Some other caveats do apply of course – open banking is a regulatory wheeze, so it could be subject to the law of unintended consequences, the market being very tricky to second guess. And customer security concerns, lack of awareness and the fact that not all the banks are keen on the idea of actually helping their fintech rivals to snatch their lunch, may mean that things will move rather more slowly than many predict.
But the potential for a dramatic shake up of SME banking is there for sure. In just the same way that you can buy a flight on Expedia or a hotel room on Trivago without ever visiting the website of the actual airline or hotel concerned thanks to API (Application Programming Interface) technology, open banking will use APIs to allow fintech third parties to build apps and services around customers bank transaction data.
APIs have had a massive impact in other markets (there’d be no Uber without the Googlemaps API, for example, and no CityMapper without APIs from regional transport authorities like TfL). If they can be even half as disruptive in the banking sector, then it’s set to be an interesting few years.
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