Published 28th April 2020
As daily life is increasingly digitised, organisations of all sizes and across industries are seeking to transform routine activities into opportunities to add value for their customers. The goal is a challenging one, particularly for entrenched industries and their legacy leaders.
The first step forward is one toward openness, a move that could, at first, appear counterintuitive for many organisations such as established financial services providers. However, the introduction of open banking legislation in the EU effectively made that step mandatory. Now that the big banks have put their APIs in place, the opportunity exists to leverage them to the advantage of both organisations and consumers. What remains to be seen is who will make the most of that opportunity.
The premise of ‘open banking’ kicked off in 2015 when the European Parliament adopted the revised Payment Services Directive, commonly known as PSD2. Championed as a means of ensuring consumer protections through safer, more innovative payments throughout Europe, PSD2 helped level the playing field for non-banks looking to provide payment and other financial services to consumers.
For established banks like the CMA9, the nine largest UK banks as named by the United Kingdom Competition and Markets Authority, compliance with PSD2 meant delivering application programming interfaces (APIs) that enable licensed organisations to access bank data down to transaction level for current accounts.
Coming into full effect in 2019, the move to open up banking enabled smaller ‘challenger’ banks, fintech startups and even companies situated well outside finance, such as telecommunications providers, to begin developing product and service offerings that incorporate customers’ banking needs, habits and — crucially — data.
A case of perspective
The introduction of open banking APIs handed non-banks the opportunity to fundamentally disrupt the finance industry — and was warmly welcomed by the handful of challenger fintechs endeavouring to do precisely that even before they were able to access transaction data. Offering users everything from fee-free currency exchange and peer-to-peer payments to borderless current accounts and cryptocurrency exchange, these challenger banks provide functionality customers want without the infrastructure required for traditional banking products, like loans.
Fintech challengers like Revolut, Mondo and others count millions of active users, yet their future remains uncertain as the majority struggle to establish viable long-term revenue streams. Amid indications that open banking rules will eventually extend to consumer accounts beyond transaction-based ones, the popular neo-banks are forging ahead despite mounting losses — and in the process, demonstrating to consumers the type of user experience they can have in the traditionally dry, often complicated, always necessary world of banking.
As consumer expectations rise, the real question is how the big banks will respond. While on one hand, it makes sense for them to view fellow established institutions as their real competition, by not competing with challengers on the customer experience (CX) front, banks are effectively surrendering that interaction with their customers. Viewed that way, it appears the real opportunity in API banking is there for the taking by the established banks.
Technology as a solution
Regardless of who rises to the challenge of maximising the value in open banking, the effective application of disruptive technology will be central to their success. Recent years of developing tech solutions to consumer challenges have taught smart developers that experience wins in the race for user adoption. Yet, traditional service providers still appear to be coming to that conclusion.
When it comes to creating digital solutions, whether customer-facing or for internal use, companies large and small must be realistic about their internal capabilities, as well as the skills and investment needed to create products and services that consumers will want to adopt.
The low-lying fruit in financial services is the everyday customer experience around moving money where they need it to be, quickly and securely. With the advent of API banking, service providers can offer greater choice around that experience than ever before — even among accounts held in competing banks.
For customers, the question is what took so long. For banks and their emerging competitors, it’s how to maximise the opportunity. By using technology to address long-standing roadblocks, such as transfer times and fees or device compatibility, organisations across sectors can leverage open banking APIs to deliver the kind of ease and experience customers will appreciate and adopt.
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