Open Banking regulation is a critically important strategic topic that cannot be ignored due to the size of the opportunity and the potentially disruptive impact it could have on the financial services landscape.
Consistent with wider social shifts towards transparency, data standards and sharing, Open Banking is an enabler for increased competition, innovation and customer centricity.
The UK is at the forefront of Open Banking innovation globally, with the Competition and Markets Authority (CMA) mandating that from January 2018, the nine largest current account providers must offer standardised application programming interfaces (APIs) for current accounts to Account Information Service Providers (AISPs) and payments for Payment Initiation Service Providers (PISPs) – according to a new report The Future of Banking is Open.
By providing access to this data to third parties, Open Banking levels the playing field between traditional incumbent financial services providers and new disruptors. Incumbents are at risk of falling behind more technology enabled peers as well as new market entrants, such as FinTechs.
They are challenged by the potential entry into financial services by prominent players in other industries, in particular technology giants who may now be encouraged to innovate in areas like payments.
While many customers’ concerns about security and privacy currently outweigh the perceived benefits, there is already a large target market for Open Banking solutions.
The report estimates that Open Banking has the potential to create a revenue opportunity of at least £7.2 billion by 2022 across retail and SME markets. Examples of the numerous use cases enabled by open API data include account aggregation, better financial management, credit scoring thin-file customers, and integrated lending and accounting platforms for SMEs.
Over time more innovative propositions should completely change how financial services are delivered and integrated into everyday experiences.
Our analysis also suggests that companies should target affluent, young, urban populations as an initial customer market although this will grow and widen as propositions mature. Companies need to ensure that they have a compelling vision of how they will stand out in a highly competitive and transparent environment.
It is not feasible to chase all the potential Open Banking opportunities, so firms will need to focus on developing differentiated propositions and capabilities. They will need to make choices about addressing capability gaps through acquisition, partnering or operating as part of an ecosystem of providers.
Regardless of positioning, there are some common characteristics we believe are required to succeed in an Open Banking environment which include: a customer centric operating model, strong data analytics capabilities, integrated and secure technology platforms as well as an agile and open working culture.
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