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Written by Matt Kirk Published: May 6 2020 Investments
Open banking was forced upon the nine biggest banks in the UK with the promise of increased transparency and competition for customers over a year ago. In the US, it has occurred more organically through fintechs screen scraping data. Governments in New Zealand, Singapore and Japan have also put in place frameworks for open banking.
Here, it is set to be phased in from 1 July, with the four major banks obliged to comply and remaining ADIs to follow a year later. Initially it only include data from credit, debit, deposit and transaction accounts, with mortgage data to be included by February 2020. So access to a full financial ecosystem is further off.
Yet little is understood about its potential. So what can we expect in July, and in the years to come?
By accessing the real-time information available through the provision of open banking, advisers will benefit from a dynamic picture of a clients pattern of expenditure, income, their existing suite of financial products and the performance of those products. Advisers can overlay this individual information with additional data to deliver tailored solutions for clients.
The opportunity to win more clients from the existing pool, and win a broader audience too will come through personalised product creation based on information individual circumstance. Homogeneous offerings will become passe.
“…it [open banking] allows the question about what’s better for you [the client] to be dealt with without getting hung up on all the paperwork,” Scott Farrell.
Client information will be readily available and verified, administration minimised.
Control and Choice
With open banking, the balance of power shifts away from major banks to customers, with opportunities also for innovators (whether its big banks, third parties or start ups) to leverage new found access to personal financial details and use that to build and deliver competing financial products to address needs and solve problems.
Client “loyalty” (read: inertia) coupled with the cumbersome process of migrating one’s finances, have been contributing factors toward the dominance of the big players. Open banking makes it possible for a future where frictionless portability of term deposits through to mortgages could be more easily delivered for clients.
Australians are likely to have fragmented financial providers across a range of products; home loans, investments, credit cards, superannuation, travel cards, insurances, advice et al may be with an array of companies. Once an aggregation platform is built using the data available in open banking, all of this can be aggregated for overall visibility.
“The opportunity to be offered different products, better products for you, lower prices…” – Scott Farrell”.
With open banking systems in play, bank A will have to share a customer’s financial data with bank B or financial adviser C at the customer’s request. Giving bank B and financial adviser C the opportunity to offer products and services that may ultimately take business from bank A.
Complicated and Clunky I.T.
Open banking is entirely based on APIs, but whilst most banks and many intermediaries have a patchwork of hundreds of API endpoints internally, their technology infrastructure is highly complex. A significant disadvantage in a sector where challenger banks, born on the cloud, are free of these fossils.
Easy Come Easy Go
On open banking platforms, the customers will have a choice to have their data released to third party firms, who may access this data to offer competing products. Retention and customer communication will be necessary for survival in this new world.
Even with the ACCC building in safeguards, it will be challenging getting the populous to opt in to a system that opens up their most sensitive financial data.
Access to an individual’s data will lead to greater differentiation of offering to meet the needs of distinct business-types, putting the customer, not products, at the heart of the proposition. Advisers will have the opportunity to evolve their businesses to create specific, highly-targeted offerings.
For advisers and brokers, access to financial data means they can approach a customer more easily and offer them a more relevant product. As you’d expect with increased competition and innovation in the market, retention through customer-centricity will become critical in all financial businesses.