Open banking myths
Guilty. I’m one of the folks that said open banking will dislodge the customer relationship from the banks to neobanks and fintechs.
This is kind of true, but not really the whole truth, and not much has been said about the whole truth.
The truth is that when I was running digital for Temenos, our internet/mobile banking solutions had in excess of 250 functions. That includes everything from logging in and changing your password to setting up payees, initiating transfers or sending money overseas.
It also includes opening new accounts, although that was counted as a single function per product.
For business banking, it was over 400 functions. Open banking provides less than a dozen functions, and the original PSD2 dictate was only two (account information and payment initiation).
So, while I love using Emma on a day-to-day basis to see a summary of my accounts, balances and transactions, anytime I need to do an actual transaction, bank a cheque (yes, people still send them) or query a transaction/charge, I’m back to my main bank – a traditional so-called “legacy” bank.
For my business, I did try using one of the new digital providers, and although it was one of the most recommended it was so seriously limited I had to revert to a traditional bank.
For example, I was unable to have more than one person operate the account (which also meant I couldn’t set limits for another person) and they didn’t provide international payments.
As such, I believe that many people will remain multi-banked for some time, even after the profound changes that Covid has stirred.
This is not all good news to banks, as it is clear that neobanks will mature and flesh out their services over time (that is if they can remain profitable and continue to fund their growth from investors).
Another myth about open banking is that having an API strategy will enable banks to drive innovation through fintech collaboration.
As per my last article, few banks have gone beyond the basic open banking APIs and even fewer have created more than a handful of fintech collaborations.
With over 3 billion open banking API calls last year, this does not mean that open banking has failed, it just means we have not seen its full impact yet. The iPhone was a huge success in 2006, but it didn’t make mobile banking a huge success straight away.
The key driver for open banking was to drive innovation and competition for banking, and I do believe this is happening.
However, of the 200+ new companies focused on banking services (there’s a few with a licence but most without), the key theme seems to be a “better experience at lower cost”.
It remains to be seen how many of these will survive the long term, especially when investor patience for growth runs out.
An additional pain is the monthly renewal of banking connections. I for one started with four apps I used quite regularly and now I’m “connection fatigued”, so I only have one app that I use to renew my banking connections regularly.
So, while I am using Emma to manage and gain quick access to all my accounts, balances and transactions on a daily basis, when it comes to actually doing any banking I am back to my traditional bank.
My traditional bank’s app has improved and serves ALL my needs. My traditional bank also has a fraud guarantee, and having been the victim of fraud I am glad that I didn’t move for a “better experience”.
My traditional bank has a large call centre, so when I did need to call there were real people fully trained to help with my issues, and a branch with a friendly face when I needed one most. I can see myself using both apps for some time.
Therefore, while open banking has taken away my day-to-day interaction with my traditional bank, it hasn’t yet compelled me to move accounts.
I do believe open banking and Covid have made banks pay more attention to their digital channels, and we are still going to see the number of branches being reduced.
I also believe for specific customer journeys some fintechs have shown banks what a great experience should look like and could carve out a nice niche for themselves.
It took 20 years for banks to get more than 50% of their customers using online banking, and over 10 years to reach the same in mobile banking.
We are clearly still at the start of the journey with open banking and we have yet to see experience changes combined with broader open data initiatives like those in utilities, property and healthcare. Even in financial services, we have open finance on the horizon.
I’m just saying that we are early in the cycle with open banking. In Gartner’s hype cycle terminology, we have passed the “peak of inflated expectations” and we’re now descending towards the “trough of disillusionment”.
However, there is no doubt we will return to a “plateau of productivity” where open banking has enabled easier, faster and better experiences.
About the author
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He is CEO of AskHomey, which focuses on the experience for households, and an investor and mentor in proptech and fintech.
Read all his “I’m just saying” musings here.