“The future of finance is open. But not because of Open Banking legislation, but because the internet has unshackled information flows. In the future, financial information will flow horizontally across an ecosystem, rather than vertically through an integrated value chain; finance will be embedded into everything from ecommerce to home buying.
“What is different about Open Banking legislation is that it takes away banks’ agency: effectively, banks don’t have any choice but to open up. Whereas a hotel can choose whether or not to list its rooms on booking.com, a bank can’t choose whether or not its customers’ account data is displayed on another site; the customer has been put in charge of their data.
The big Open Banking ‘fail’
“In other ways, however, the legislation is much less radical. In many places, Open Banking hasn’t prescribed standards. This is a big fail given that setting semantic and security standards is where regulators could have added most value. Deadlines have also been allowed to slip.
“But, more generally and significantly, we didn’t think big enough with Open Banking. Account information is useful for many use cases, like budgeting apps, but to build a really meaningful view of a customer’s financial and commercial lives – and in turn deliver transformational levels of value-add – requires much more than account information.
“Open Banking could have gone much further and facilitated access to everything from credit to shipping data. After all, this all belongs to the customer. This is why Open Banking, although unequivocally an important catalyst for change, won’t be the end point (in the same way as it wasn’t the start point).
“The biggest issue with Open Banking is that it is a stick rather than a carrot. It forces banks to open up a narrow set of data. It doesn’t make it in the banks’ interests to do so. And so, firstly, Open Banking has been delegated within banks to the compliance team, who are responsible for implementing it. And, secondly, banks are in most cases doing the minimum to meet the statutory requirements.
“This leads us to the third point, which is that in most cases banks are not looking at Open Banking strategically. Open Banking is a step towards something bigger - Open Finance – where the free flow of information will benefit networked business models.
“Therefore, Open Banking is not ultimately a regulatory consideration at all, but instead a question of where banks want to play in the value creation process in the future – with massive implications for profitability.
“If we accept that customers will want to conduct their financial affairs through the channels with the highest engagement – Whatsapp, Slack, WeChat, Amazon and so on – and that financial services companies don’t simply want to become dumb pipes, then financial firms must embrace platform models. Only by orchestrating value and connecting the various stakeholders within the ecosystem – customers with fintechs, fintechs with fintechs, customers with customers and so on – can financial services companies hold onto customer loyalty and profitability in a world where financial services become decoupled from production and increasingly embedded in third party channels.
“Open Banking legislation was helpful, but not brave. Financial services companies need to be brave- to look strategically beyond Open Banking to embrace the future of Open Finance.”
