“Once you have experienced Open Banking it is unthinkable that you would go back.”
Chapter 7 Open Banking (“OB”)
The Emerging Payments Association (EPA) Asia is a commercial membership association of payments industry influencers. EPA Asia is part of the growing EPA global network. It runs more than 30 events each year, delivers eight projects annually to drive change, helps to connect the ecosystem, encourages innovation and profitable business growth. The EPA’s vision is for Asia is to be the regional Knowledge Hub for payments innovation. As it sets out to be the most influential trade body in emerging payments, the EPA’s mission, to collaborate to innovate, has the potential to improve lives everywhere.
How can we ensure that OB is successful?
What are the key concerns around data sharing?
What is the role of the regulators?
Success factors for Open Banking
In different markets, regulators have taken slightly – or even vastly – different approaches in terms of being regulation led or industry led.
Many regulators are still trying to figure out how to stimulate the development of an OB enabled economy without mandating everything onto unachievable timetables.
Much of the early work has been around the technology standards with a focus on consents and data security. This has meant that not so much time has been spend on exploring the breadth and depth of use cases in order to show merchants and consumers the benefits that will lead to adoption. That said, OB usage has experienced a large uplift in the UK in the last 6 months as people have had both the a) time and b) motivation to explore digital tools that promote financial wellness.
The latest figures from The Open Banking Implementation Entity (OBIE), the body set up by the Competition and Markets Authority (CMA) to deliver open banking in the UK, show a steady increase at a rate of around 160,000 users per month. The upshift comes as more consumers seek to gain control over their own data in order to better manage their finances during the Covid-19 pandemic. There has been a sharp increase in the use of money management apps during the outbreak, of which 45% were 25-34-year-olds. According to a survey of 2000 UK adults in early July 2020, one in five started using online banking apps during lockdown and 54% now use them regularly. OB is all about data and giving the customer the right to access data and choose with whom to share it. Trust is a central to the success of OB and central accreditation is helpful but there are layers to trust.
- I trust that my money is safe
- I trust that my data is safe
- I trust that you care about me (and my financial wellness)
China – market follows the key players AliPay and WeChat and they drive the API development. Due to their market leadership, the banks therefore have no choice other than to follow their standards.
HKMA – consultation paper issued in 2018. Phase 1 and 2 launched. Now needing to plan for phase 3 and 4 development on OB. HK has put it into four phases.
UK – CMA 9 were mandated to open up APIs but there are issues with downtime. There is now an abundance of account aggregation services pulling read only data such that PFM is almost a hygiene service. PSD2 was obviously the key driver of the regulatory change, rather than OB per see.
Australia – the ACCC just announced today a new category of “accredited data intermediary.” Payment initiation is not part of Australia’s CDR yet.
NZ – industry-led approach is working well although the third parties are faster than the banks. So timing/pace issues. The big vision for OB has to be a seamless, frictionless user experience that promotes financial wellness. This requires more than consent and security of data, it also require portability of data and interoperability of apps and platforms.
Education of the consumer and merchants is often brought up as an important success factor. But who is the most appropriate party to be the educator? (And the educator on what topic?) Is it the legislators who are making OB mandatory? Or the regulators who have to monitor compliance with the standards? Or the commercial parties who operate in the market? Regulators can educate/inform on who is allowed to operate and how. Commercial entities can educate/inform on what the benefits are.
Data sharing and the role of trust
Consumers must trust that their data is safe and will be used for good i.e. to promote their financial wellness / deliver customer value. However, consumers are naturally sceptical. If there is central accreditation that is helpful as the consumers can largely take the technical side as a given but this is the same for all accredited providers. The real “trust factor” is then differentiated in the market through fabulous CX and trust is easily lost if something goes wrong. In the longer term, the CX and use cases therefore become more important to the trust factor than the technology. So trust becomes an output. Trust is the output of things going well i.e. placing the customer first. Banking globally is not a beacon for this (despite keeping people’s money safe). Cultural differences may impact on consumer trust. The willingness to share data is there provided there is a reason.
The Role of the Regulator and Fintech Partnerships
Banks are slow to move. Banks need to see a benefit – or be regulated – in order to move. There can be tensions between banks (incumbents) and fintechs (disruptors).
Regulators have a long history of regulating banks … and not such a long history of regulating fintechs! In the absence of clear cut precedents, regulators can be very slow to move and focusing on the tech is easier than focusing on the use cases.
A small yet critical mass or users should be evidence for the regulators that people want to use the technology yet consumers don’t often get a seat at the table in these discussions.
The best way to understand technology is to use it. Regulators don’t use a lot of tech in their own worlds, which is a shame.
For OB to success, apps will need to drive the dialogue with regulators to enable the business by focusing on the problem space and how the fintech solves for them.
Without use cases, we don’t succeed.
Early use cases in market are aggregation, PFM, lending and hardship. The “holy grail” use cases are always-on, totally personalised, automatic switching based on financial and nonfinancial preferences such as carbon footprint. Other use cases are pay with points, maximise rewards, round ups, fractional investing. OB is the way to create innovative and hybrid solutions that are proactive and do something of benefit for the customer without the customer having to initiate that.
But it takes 2-3 years to get traction. You need a certain degree of momentum and critical mass to reach the necessary tipping points that accelerate adoption.
OB must be “applied innovation” not just clever tech. There is a commercial challenge in being “too innovative.”
Senior Retail Securities Manager at HSBC
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