When it comes to Open Banking, regulatory, technological and competitive pressures are forcing banks to confront the choice posed by French critic, journalist and novelist Alphonse Karr: “We can complain because rose bushes have thorns, or rejoice because thorns have roses.”
Recent Accenture research indicates that banks in Europe (where Open Banking is being mandated) and in North America and Asia Pacific (where, at the moment, it is optional) appear to be choosing to admire the flowers.
Our recent poll of 100 payments executives suggests that banks are seeing the opportunities inherent in allowing customers to share access to their financial data (such as bank account balances and transaction history) with non-bank third parties, so that those third parties can then create apps and services in which banking is embedded. Ninety percent of respondents expect Open Banking to boost revenues by up to 10 percent. Nearly two-thirds of North America banks say that implementing Open Banking is critical to remaining relevant and competing with new entrants, such as fintechs and tech giants like Google, Apple, Facebook and Amazon. A minority of banks (37 percent in North America, 29 percent in Europe and 23 percent in Asia Pacific) already distribute banking products through third parties to consumers with whom they do not have a primary relationship, although these are often through traditional distribution partnerships rather than digital embedding.
Yet like a rose bush, Open Banking also comes with some thorny threats. Half of the banks are concerned that Open Banking will make them more vulnerable to security breaches and fraud, because banks must expose their proprietary software and application programming interfaces (APIs) to allow outsiders to integrate their services. This concern is particularly prevalent in Europe, where nearly two-thirds of banks think Open Banking will increase risk; a point maybe not unconnected with the new European GDPR data protection regulations and the stiff fines that will be levied for breaches. The other risk posed by Open Banking is a business one, and is the concern that banks will become commoditised product providers with their transactional services and their brands buried deep in transaction flows controlled by non-bank competitors.
When it comes to Open Banking, the ability of banks to focus on the flowers and not the thorns will be helped by three strategic actions:
- Position Open Banking initiatives as a strategic growth priority, an efficiency opportunity, and a chance to improve the customer experience. Consider Citibank’s CitiConnect service.
- Treat data as a new digital business and monetise it. That is what the fidorOS platform aims to do.
- Proactively help retailers who are familiar with PSD2 to use Open Banking to improve their products and services and be first to the table with value-added propositions and new services. For example, Mastercard recently announced that it is opening access to its blockchain API for merchants to create new digital commerce experiences.
Banks can turn Open Banking to their advantage, and are likely to see revenue decline if they adopt just a basic compliance mentality. But doing so depends on how they look at it: as a thorn to their existing value chain that they must minimise or avoid, or as an attractive new path to new products and services, incremental revenue streams, and a better experience for their customers. Done correctly, banks will be able to admire a glorious bouquet of roses at the centre of their business, rather than continually hunting for Band-Aids to stem the bleeding from pricked fingers.
I invite you to read more about our survey findings.