Open banking: hit, miss, or too soon to say? The fintech verdict
1 November 2018
I recently chaired “Open banking: hit, miss or too soon to say?” at techUK, with my colleague Ruth Milligan, bringing together five fintechs with the members of the Open Banking and Payments Working Group, banks, the Financial Conduct Authority and the New Payment Systems Operator, to hear direct from the front line on the open banking experience thus far. We asked: where are we with open banking, and what needs to happen to ensure its success?
Tim Richards from Consult Hyperion kicked off with an overview of the state of play. There were certainly problems, he noted, but much progress has been made. “Open banking is a baby – it will take time to grow up,” he concluded “When it does, we will see real competition.”
But others were far more equivocal. Caroline Plumb of Fluidly said that her company, although authorised as both an account information service provider (AISP) and payment initiation service provider (PISP), was not currently using open banking APIs as the commercial risk is too great, at present, for three key reasons:
- The coverage is still limited to current accounts. But Plumb’s SME clients need data from across the range of accounts, from savings to corporate cards.
- The consent journey for users is cumbersome, slow and difficult to cope with, especially for SMEs where multiple directors are account signatories.
- API standards were meant to ensure consistency, but in practice each bank handles its customer flow differently, with no consistency of language, number of screens and so on.
For Ashleigh Petrie of MoneyBox, open banking should deliver great benefits, both to companies and users. She was looking forward to the extension to credit cards, and the ability to use payment initiation instead of direct debit to collect monthly savings.
However, not all was rosy. She went on to list major difficulties in connecting to a large incumbent bank. She illustrated a seven-step process for customers, different from their online banking and involving several passwords and numbers. Since Moneybox has no sight of the process after the customer leaves its app, assisting customers has been problematic and drop-off rates high. She contrasted this with Starling Bank, which has a three-click process using biometric authentication: clearly the process was far easier for a digital bank operating only through mobile platforms.
Martin Threakall from Modulr Finance was very positive about open banking. He noted the obvious: it is only insiders who are debating success or failure – the public knows little about it and are unconcerned about slow progress. He believed open banking will really deliver when it has achieved full scope and payment services are up and running. Modulr is preparing an open banking service to allow its lender customers to collect monies owed. He agreed, however, that the process must get much easier if consumers are to adopt.
For Ryan Edwards-Pritchard of Funding Options, speed and convenience for customers was paramount. Currently the speed of APIs across the CMA 9 varies from three to 22 seconds and although he didn’t expect a seamless process, it did, he said, need to be swift and standard. Likewise, the customer journey must be standardised, using language that informs and does not scare the customer off. In his view, a trust mark is needed, both to reassure customers and to give banks something to aspire to over and above the letter of the law.
The last speaker, Stefano Vaccino from Yapily, presented what may be a solution for many third-party providers (TPPs) – the integrator option. Yapily streamlines the process between TPPs and all banks, both UK and international. It does not require FCA licence under current rules but works with regulated companies. For Stefano, the main issue was how to ensure EU and international standardisation and interoperability, both of regulation and process.
The discussion focussed on payments. The fintechs were keen to use open banking for payments to provide immediacy and enhance competition. Yet several barriers were identified: the technology is currently clunkier than cards and, unless this changes, they will not be used. Push payments do not carry the guarantees that credit cards do. The must-have use-case for PISP is not yet clear – fintechs need to unearth opportunities where PISP will come into its own. Payment initiation will be more interesting when it also covers future and variable payments.
Overall, six conclusions emerged:
- It is too soon to say: open banking is not fully developed, many TPPs are waiting to see, but this will change. Banks also need more time to improve their processes.
- As the market grows, banks will better recognise the opportunities.
- There is likely to be a key role for integrators to smooth over connection issues.
- The success of open banking depends on customer adoption, which will require fewer steps, consistent user journeys, clear language and easy authentication (such as biometric). A trust mark would help.
- Standardisation in the UK is not enough – we need international standardisation.
- The “killer” use-cases still need to emerge – especially for payments.
Dr Louise Beaumont works with legislators and regulators to create disruption, with corporates to cope with disruption, and with start-ups to exploit disruption
Originally published in Business Reporter Online: Future of banking and fintech - October 2018