Despite buzzwords around Open Banking such as partnership and co-creation, fintechs and challengers are sceptical that big banks are seriously contemplating changing the status quo, writes Chris Skinner.

I hosted a dinner that focused on Open Banking recently and what it means to fintech firms and start-ups. There were no bankers at the table, but many firms that consult, provide systems or are deploying new businesses in fintech.

The general consensus was that Open Banking is all about customer focus first and foremost. For example, customers’ onboarding experience is horrendous today, involving forcing them into the branch with all of their identification documents. If we could simplify and take the pain out of that process through application programming interfaces (APIs), that would be amazing.

The question then comes down to: how do you commercialise this? After all, if onboarding could be done in the same way as cheque capture, for example, via a smartphone camera capturing your face, passport and address, then it becomes a commoditised service that everyone would use but no one wants to pay for.

Making the switch

Equally, how do you get customers to switch from banks to fintech firms, when they are happy with the service they’ve got? People rarely switch bank accounts, which is the real issue for the challenger banks. These challengers claim that it starts with gaining customers’ trust through usage: so the challenger starts as a secondary account and then can use the Open Banking API economy to give information enrichment.

That’s what Monzo, one of the leading UK digital banks, does. Over time, a customer finds they are always using the challenger’s app and so why are they still with the old bank? It’s at that point they switch. That is the idea anyway, but it begs the question: how many challengers will really challenge the big banks and how many will be acquired by them? This is what happened to Simple and Atom, now owned significantly by BBVA (39% in the case of Atom) – and many start-ups want the same end game: to be acquired by a big player at a high cost.

People rarely switch bank accounts, which is the real issue for the challenger banks

Bringing that back to Open Banking, there is a lot of fear, uncertainty and doubt about it. This was shown by the way the mainstream UK consumer press all said customers would be hacked and defrauded if they allowed third-party access to their bank account, even though the regulator has forced this to happen. It’s obviously not true – why would a regulator bring in a regulation to make customers less secure? – but the fear, uncertainty and doubt persists. For example, if a third party compromises your data, who is liable? Where is the burden of proof? Generally, it is with the bank. Equally, the General Data Protection Regulation makes this tricky. How can you share all your customer data when this regulation is telling you not to?

This has all been driven by EU regulations for open APIs around payments. The UK has gold-plated the regulations, and made it into Open Banking, and the bottom line is that banks are being told to open up their data and processes to third parties. But let’s go back to basics: does anyone want this?

Not so open

We are hearing a lot about banks talking partnership and co-creation, but we haven’t seen much of that happening so far. There may be a lot more in the future, but true partnering between fintechs and banks is few and far between today. In fact, it appears that most banks are a bit confused about what’s going on. Half of the major banks weren’t ready for Open Banking in time, and many are asking where the business case is for Open Banking, especially if it demands high-risk and costly investments in system upgrades and replacements.

What banks need to ask is: ‘What does it mean if we open ourselves up to data sharing through APIs, and what does it mean if our competitors do this?’ There is a win-win here and, for some bankers, Open Banking presents a huge opportunity to challenge their traditional competitors and their new ones. It is all about seizing the day.

Most of the attendees at my dinner felt there are a lot of things changing around the banks, but little changing at the banks themselves. They believe Open Banking and open APIs will change banks, but it will only be nibbling around the edges of the system – by 2025, the big banks may be leaner, faster and cooler, but they will still be the big banks. 

Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter