European and UK regulators are dragging banks into a new era of competition, forcing them to question traditional business models and explore what it means to compete against companies that do not look like them, such as retailers, fintechs and ‘tech titans’.
The Payment Services Directive 2 and its UK equivalent, Open Banking, put in place the framework needed for banks to embrace open application programming interfaces (APIs), technology that places much more control in the hands of the consumer to choose how and what data they share, and with whom.
But simply ticking the compliance box is not going to cut it in an Open Banking future. This is a strategic, board-level question. And to cope, bank boardrooms need two key attributes: creativity and courage.
While standard APIs make it much easier and more secure to deliver aggregation services, which aggregate account data in one place, or sweeping services, which move money across accounts, this is just the beginning of the possibilities Open Banking offers. Beyond ensuring consumers have better visibility and control over their current account finances, third-party providers – which include banks, fintechs, retailers, and so on – can incorporate energy, telecommunications, insurance, loyalty behaviour and health data, for example, to develop new customer propositions.
By making use of free-flowing data, innovators can create the hyper-personalised and predictive services that consumers and small businesses are asking for. It will take these new propositions and use cases in the market for Open Banking to really take off. While the UK and Europe are leading the world today, many jurisdictions are looking to follow suit, as illustrated by recent initiatives in Hong Kong, Australia and Japan.
