Is Open Banking the future?

Is Open Banking the future? Share

We’ve been reading quite a bit recently about developments in Open Banking, which seems to be rapidly growing in popularity. And following Barclays’ recent move to allow its customers to manage their accounts across multiple banks within the one app, we think it’s time to discuss what Open Banking is, and why accountants should keep abreast of it.

What is Open Banking?

In short, Open Banking is a way to increase competition between banks, making it easier for customers to move from Bank A to Bank B or have multiple accounts at different banks. It also encourages greater information sharing between banks, to enable people to more effectively manage their money across different banks they may be customers of.

It is also paving the way for smaller banks and non-traditional or third-party financial service providers to fit into the banking mix more easily, given the ease of (secure) data sharing. The movement, therefore, is about ‘opening up’ – hence the name Open Banking – to give non-traditional banks a platform to step into and the ability for additional service providers to provide services at lower cost than banks, based on clients’ existing bank account data.

How does Open Banking differ from traditional banking?

The main difference is the concept of data sharing, as it gives customers the option to be more flexible and shop around for different services from different providers, without having to feel locked into what their current bank can provide. In essence, it puts more power in the customers’ hands to get what they want from a bank, rather than accepting whatever their bank might be offering.

It’s likely that some banks will go fully mobile with apps and add-ons allowing people to manage all their banking from their mobile phone, while other banks (and indeed, customers) will feel more confident with branch options, with face to face meetings and relationship building.

Traditional branch banking will likely continue to evolve, becoming more like Apple stores with a focus on tech and personal support. For those making big decisions, like mortgage arrangements, an element of face-to-face support will be essential for some, while others may wish to do it all online.  Open Banking can and must mean banks will adapt to the needs of both groups.

What does this mean for smaller banks?

The developments in Open Banking give possibilities for smaller banks to provide services that the high street banks may not be able to offer today, while giving easy access to the consumer. It also paves the way for Fintech start-ups to provide services like peer-to-peer payments or peer-to-peer lending, so there’s more, from an ecosystem perspective.

Ultimately, the movement will open up a whole new swathe of possibilities for existing banks, and enable them to give their customers the ability to get involved and select their own services and benefits.

The challenges: data protection

The main question mark over Open Banking is one of data protection. As a customer, in order to get the most from it you must be prepared to grant third parties access to your bank details.

Confidence and trust in banks is growing: people believe that their data is safe with their bank, and there are rarely any issues with data leakage within traditional banks. So then when it comes to third parties and other service providers, the question for consumers is: is the extra service worth risking your privacy for? There’s a trade-off everyone has to make, though we imagine third parties will be falling over themselves to prove their security credentials to get a slice of the Open Banking pie.

How does Open Banking impact accountancy?

There is no complete, end-to-end, value chain process anymore. If we go into Open Banking, the banks’ business model will change. Finance leaders will then have to ask: are they only doing Open Banking or are they also becoming a service provider or an information-selling provider?

If you’re opening up with APIs to third parties, are you going to ask a fee for it? If so, will there be an additional income stream? Ultimately, there will be a lot of additional business opportunities, and getting to grips with what these opportunities might mean for your business could mean exciting things all round. Stay ahead of the game!

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