How banks can be supported to achieve full open banking adoption
Since the first wave of open banking tools were introduced in 2018, financial institutions and ambitious tech companies, from lenders to personal finance management apps (PFMs), have been able to facilitate significant innovation in the services they offer to both retail and business customers.
Banks have been at the heart of this progress and are the gatekeepers to further advancements. However, commitment from all banks towards achieving full adoption hasn’t always been forthcoming, and in order to maximise the potential of open banking, the financial services sector needs their whole-hearted support.
Finding the right partner
While it’s possible for larger companies to have the resources in-house to implement open banking services such as account information services (AIS) and payment initiation services (PIS), maintaining them can take lots of time and cause headaches for the company.
As such, most work with a partner to ensure that the services are maintained correctly, so their customers can continue to feel the benefits. However, choosing a partner to move forward with can be difficult in itself. Our recent Unlocking Value of Open Banking report found that, when thinking about reasons not to implement open banking, 50.54% of respondents stated finding the right provider is too difficult as a factor.
Initially, this was due to lack of choice. Open banking hasn’t been around for long, with the first wave of services coming into effect two and a half years ago. Consequently, there wasn’t a huge range of partners for companies to choose from and finding one that matched their vision, seemed difficult. Conversely, the majority of technology providers were finding their feet and didn’t have the capacity to work with, and execute open banking services to, a large number of clients.
Furthermore, back in 2018, none of the third-party providers had any meaningful track record in the space, meaning banks were expected to partner up based on the promise of success.
Things have quickly changed; however, with there now being over 200 open banking providers delivering services to businesses, along with over million people using open banking in the UK. The Open Banking Implementation Entity (OBIE) has even launched an Open Banking app store to help consumers and businesses, with 81 apps at the time of writing. On a global level, the total number of Open Banking users is expected to double by 2021, according to consumer association, Which?, who estimate its use reaching 40 million next year from 18 million in 2019.
When it comes to the performance of open banking services, the more businesses adopting them, the better the results. For consumers to reap the benefits of a fully interconnected and open financial ecosystem, the financial providers must be connected. Every bank not opening up their APIs means that a section of the ecosystem is closed off to the rest. An aggregator app is most useful to consumers if they can aggregate most or all of their financial accounts.
The necessity for openness to enhance the results of open banking is why many of its supporters hold the vision to go beyond the current services and into full open finance. Whilst banks are at the heart of open banking, a truly open financial system would place other players, such as pension, insurance and utility companies, alongside them, sharing consumer data with permission. It would allow consumers to manage their entire financial footprint in one central place – for example seeing their energy bills alongside their current account and mortgage together, in one place, providing a far more accessible user experience.
Banks support of open banking should be at the heart of the drive to achieve full adoption, easing the concerns of those hesitant businesses and highlighting the benefits it can bring. Those who have embraced the services have seen lower costs, increased efficiency, improved customer insights, better retention, and cut through in new markets. These are, of course, all things for a business to strive for. It should be made clear that now isn’t the time to wait; it’s the time to move forward or risk being left behind as adoption levels increase. Particularly in light of the enormous impact COVID-19 has had on many businesses’ priorities and strategic plans, adoption of open banking could support many organisations in their recovery operations.
More banks should partner up and build trust with aggregators and third-party service providers (TSPs) to implement and maintain open banking services. Rather than building application programming interfaces (APIs) and systems from the ground up, TSPs supply ready-made infrastructure which can be up and running within a few weeks. With the complex business environment currently facing the majority of firms, having the ability to implement services that allow them to adapt quickly is an attractive proposition.
Additionally, banks could raise awareness about the misperceptions which exist around open banking, which remain a barrier for some when thinking about embracing open banking. The chief concern revolves around consent, as some see it as a way for companies to access consumer data without permission. On the contrary, consent is the cornerstone of open banking, which simply doesn’t exist without it. Having the banks present a united front in dispelling this concern would go a long way to alleviating the concerns of those who are doubtful.
All together now
The banking sector has come a long way in a short space of time with open banking. After initial teething problems, which could make it difficult to find the right partner to implement services, there are now a wide range of options for businesses to choose from, and supporters are now in the majority.
Ultimately, another push is needed to reach the full adoption required to take open banking to the next level. Doing so would create a connected ecosystem in which consumers can find what they’re looking for faster, and have services offered to them which are tailored to their needs. Banks need to come together to drive this forward, promoting the benefits of open banking and services which could make things easier for businesses to adopt, while changing some of the misperceptions businesses have at the same time.