More than a year after Open Banking was launched in the UK, there are growing concerns that the banking sector has so far not delivered real innovation, despite the technological opportunities that are available.
At the Open Banking Expo Magazine Breakfast Briefing held in partnership with Equinix in London in July, there was little doubt that innovation – or the lack of it – was on the panellists’ minds.
Speakers from across the sector tackled the opportunities presented by the PSD2 directive and discussed what companies need to do to ensure success. This included how the Open Banking can deliver true innovation for consumers, how banks can use their customer data to produce useful APIs for the industry, and how they can work with third parties to build ecosystems that benefit all participants in the market.
Paul Clark, chief technology officer at Tandem Bank, said the UK’s banking sector has not introduced true innovations since Open Banking was launched in 2018.
“Everything points to the fact that there is no innovation. They’re doing an old thing in a new way,” he said. “I don’t think anyone’s doing anything new in banking. Monzo has a better bank account, but it’s the old thing in a new way.”
For Clark, both incumbent banks and challenger banks may be providing customers with a better user experience, but so far the products that have come to market have not changed.
“The real innovation will come when we allow people to interact with money. When they can get the right product for them in the right way,” he said.
Difficult to measure
A key problem is that it is difficult to measure whether a product is innovative and each panel member said their organisation had a different approach.
Andrew Kemp, Open Banking lead at HSBC, said his firm measures success by looking at how the customer journey has improved.
“What we talk about internally isn’t just market share and origination, we’re focusing on the customer journey, measuring it in terms of customer pain points and reducing friction,” he said.
However, Nilixa Devlukia, head of regulatory at the Open Banking Implementation Authority, said it is more complicated than improving the customer journey.
“It’s a very wide question. Some of it is surely the basics of how many people in five years are providing access to their data,” she said. “But how are you going to quantify the services that wouldn’t be possible without this access or the regulatory framework? I’m not sure improved user experience is any measure of innovation – it’s got to happen. Some of what’s happening now is just a reaction to the circumstance that we have [had] bad user experience.”
Clark said his company measures innovation by the number of customers that use its products.
He said: “We try to weight the value you give to the customer, but we also track customer lifetime benefit. It’s the number of customers to whom we provide a benefit. How many customers are we helping?”
Meanwhile, Eleni Coldrey, business development director for EMEA at Equinix, said one element of innovation can come when banks think more strategically about their data and APIs. She said banks have significant amounts of data that are akin to a “goldmine”, but they aren’t making any use of it.
“PSD2 has been interesting in that it forces banks to think about their API strategy,” she said. “In talking to customers, we see there is internal attention on APIs. We are seeing premium APIs being developed. Open APIs are the minimum that are being provided, but premium and contract APIs are a big field that can advance once they get past compliance.”
Coldrey added that regulation compels banks to provide data as requested by a regulated third party, but they can have more success if they take a strategic approach to how they manage their APIs and their data.
Collaboration is key?
One theme that came up during the discussion was the importance of co-operation and collaboration, rather than cut-throat competition.
The sentiment was that Open Banking technology has created an incredible opportunity, but to fully realise it, companies will need to work together more effectively.
Coldrey said Open Banking technology is about creating a digital strategy that delivers a solution to customers and requires a specialist team to make it a success. Achieving this will involve multiple players in a broader ecosystem that will need to cluster together as a hub to make Open Banking a success, although this may take some time.
The sentiment is similar for Ireti Samuel-Ogbu, EMEA Payments and Receivables Head at Citibank’s treasury and trade solutions division. For her, the answer is to collaborate rather than attempt to innovate alone.
To that end, Citibank has tried to take a more client-centric approach to meeting consumers’ needs, which includes working with third parties.
“An aspect of innovation is, how do we co-create? You can’t innovate in a vacuum and banks historically have taken a Field of Dreams ‘build it and they will come’ approach,” she said. “We’ve had to become more client-centric and to build to meet client needs.”
She added: “Our bold strategy is to become the ecosystem for global commerce. But how do you become the ecosystem when you’re a standalone company? That requires some collaboration. We need to think beyond Citi. With regulatory requirements and a changing market, to cope with that level of change collaboration is necessary.”
To achieve this, Citi works with external companies that it believes will help it to create new products. Samuel-Ogbu said one aspect of this involves working with the bank’s venture capital arm to identify companies that represent good investment and partnership opportunities.
Looking beyond her own company, Samuel-Ogbu believes more input from fintechs may be beneficial for the regulatory landscape.
“I would involve the fintechs more. Regulators think about regulators, but I don’t think they think about how they solve the banks’ and their clients’ problems, and the optimal way of doing that,” she says.
“In terms of Open Banking, one of the things that we’ve tried to do differently is we were the first bank to register as a Payment Initiation Service Provider (PISP)and a third-party provider. That’s the stuff of fintechs.”
In June 2018, Citi became the first corporate bank to join the UK’s Open Banking regime as part of its strategy of enabling its business client to receive small payments directly from their UK customers’ bank accounts. At the time, the bank said the direct client-to-business payment system would be cheaper than alternatives such as PayPal and payment cards.
The move was also part of Citibank’s broader strategy of turning itself into an Open Banking ecosystem in itself, Samuel-Ogbu said.
Even so, Coldrey said firms are likely to face challenges along the way as the industry builds the infrastructure it needs and companies form a cohesive ecosystem.
She said the use of the internet, data centres and cloud computing may lead to occasional latencies, time outs, cyber threats and the potential loss of data and control.
“The number of connections that banks and fintechs are making will test the infrastructure at every level, and we will see some growing pains there,” she said.
A matter of time
Despite the criticism, there was broad agreed that innovation is just a matter of time.
“What you’re going to see is a lot more sophistication around applying machine learning to data to automatically manage your finances,” Clark said. “Products will start to take a back seat and services will become more prominent in managing your money.
Clark also believes the UK’s major high street banks may pull out of retail banking within the next decade, with consumers accessing products and services through Open Banking providers.
Companies that get it right will be able to tap a valuable market. “Open Banking provides that ability to have much more beneficial services. It’s a £12bn market for consumers to have better services such as better debt advice and more help for people with mental health problems,” said Devlukia.
“The things like debit and credit cards are great, but you need to know the difference to benefit from it. It’s about giving people access to services and information that let them manage their finances better.”