Open banking is an emerging global trend and is expected to drive increased choice for how individuals and businesses consume financial services, is driving significant change as the financial services industry adjusts to a digitally-enabled economy, and is working to appropriately manage the risk of a new digital ecosystem.
Successful banks know who the boss is: the customer. And today’s customers, especially those who fall into the Millennial category, demand fast, error-free service delivered seamlessly. Banks confronted by the formidable challenge of adapting to both regulation and technology are also finding that up-and-coming fintechs are adept at meeting the demands of bank clients. Banks, more than they ever have before, must listen closely to their customers.
When the first internet protocol was invented in the 1960s, it was primarily developed for science and industrial purposes, therefore only enabled machines to talk to each other. It had well thought mechanisms that could identify the machines, but it was not designed to enable the secure identification of the person using them.
Credit cards have become indispensable to both consumers and businesses in expediting the payment process; but when disputes arise, the system can break down into acrimony and injustice, especially when intentional fraud is committed. What programmes are card schemes Visa and Mastercard implementing to streamline the current chargeback system, settle disputes quickly and efficiently, and to protect the innocent? The new Open World model provides some answers.
Competition is intensifying in the banking sector, with fintech start-ups, technology giants and social-media leaders targeting various parts of the financial-services profit pool.
Weighing the possibility of adopting AI and automated decision-making is no longer a choice for banks; this technology has proved its worth in everything from combating fraud to meeting compliance requirements to providing excellent customer service via chatbots. As banks struggle to be profitable in the post-financial crisis era, AI has been an invaluable friend to those that have learned how to make it work for them.
In Europe, PSD2 is opening up previously inaccessible bank-customer data, with customer consent, to third-party providers, all in an effort to provide consumers with more financial options at the best prices. Although some bank managers are focused mostly on compliance, others are looking at the bigger picture: at Open Banking as a new opportunity to boost customer satisfaction and meaningful interaction.
The introduction of the European Commission’s banking directive PSD2 both recognises the shift towards Open Banking and helps drive the change; with banks expected to share private financial data with third-party providers at the request of clients, the payments industry is entering a period of radical change. What are the implications for the financial landscape, and how are banks adapting to the revolution?
For European banks, regulations (GDPR, MiFID II, PSD II, Open Banking) are aligning at a time when they are already warding off digital disruptors intent on wooing customers with convenient, cutting-edge technology-based offerings. Financial institutions that adopt a wait-and-see approach will likely lose ground in a rapidly changing financial landscape, but those who adapt and maximize their formidable advantages will prevail.
With the implementation of the Open Banking Standard, the United Kingdom embarked on a new era of openly accessible customer financial data, which should result in greatly improved products and services. If financial institutions work together to innovatively collect, analyse and share data, customers’ needs will be most efficiently satisfied; that is why Open Banking is not confined to the UK but is spreading worldwide.