Open Banking: A FitBit Style of Change
By John Bertrand from SAP for Finextra
Buy the ticket, take the ride.” Hunter S. Thompson’s quote can easily be applied to Open Banking, which becomes mandatory in the UK starting 2018. Banking innovation lead by the regulator! It’s reminiscent of the Monty Pythons’ line of what has the Romans (regulators) done for us? Well the regulatory gave the banking industry and its clients real time payments. Instant payments should be in thirty countries by 2020. It was the £1.2 billion made by the banks’ fees on overdrafts that prompted the UK regulators to act.
It’s a sea change for banking especially those of us – the majority of us – who cannot afford a Private Banker. Open Banking is Private Banking for the masses delivered through technology that may or may not be that of the banks.
It’s revolutionary for the industry with the barriers around the current account broken down. The role of the bank is changing from the safekeeping of money to permitting that money to be managed by the account owner. The account owner is now in charge at the transactional level and can permit the money in the account to be moved by others rather than the account holding bank. More importantly the data on the account can be offered out to others to see what advice comes back.
Going forward, a financial ‘fitbit-style’ of banking could become common. People and Corporates have a torrid time with cash. So many things to buy, so much choice and so little time. Imagine a prompt, just before you buy, a note saying ‘really you need this?’ or ‘not another bet, when was the last time you won’. A ‘Siri’ (Apple) or ‘Echo’ (Amazon) or similar artificial intelligence can help with financial wellbeing. From the money coming into the account, AI can help get you through the month financially without going into overdraft.
The fitbit app can also assess the interest earned on deposits and the interest cost on loans. Calculate the fees and margins being taken on cross border payments comparing the them to the market price. With this knowledge and the regularity of activities can suggest alternative providers. Once the choice has been made, the AI bots can make it seamless and convenient for the money to be moved. The AI can also check on the terms and conditions, reading the small print, which very few of us do.
The banks need to provide the safe and secure environment to retain the trust of the clients in this new world. So, anyone accessing the account needs to provide 21st Century security and approved by the banks. Open Banking is a blessing in disguise as banks must confront the growing Cyber Crime as a collaborative endeavour to prevent scams.
For the bank, Open Banking is enabling the personal and corporate greater choice in savings, investment and access to loans. For the multi-banked, an AI overlay on all the current bank accounts can help avoid multi overdrafts. This is especially true on the corporate side where the cost of the overdraft can be at least 20x of any interest earned on a surplus in the account. Real time cash pooling springs to mind as banking does not charge for intraday overdrafts.
Banks now must respond proactively to retain the share of the wallet of the customers who have largely stayed with them through inertia and the perceived barriers to change. To do so, banks must embrace technology and put it to use. Just as I’m sure bankers do so at home.