Open Banking Goes Live: The Walls Around Traditional ‘Old Style Banking’ Are Crumbling Down
January 13, 2018 may well be remembered as the ‘beginning of the end’ of the traditional retail banking industry.
Thanks to a profound set of new rules by European regulators and the UK government, we may see the start of an era where consumers no longer hesitate to change their bank accounts or make more personalized arrangements with regards to their finances.
If all goes to plan, when the dust settles a new era of banking will emerge, where existing banks can no longer take lifelong loyalty from account holders for granted. Consumers will be encouraged and ‘nudged’ to explore new financial services propositions. New, non-banking companies will launch services based on access to existing bank account information, packaged to suit emerging demands of consumers – particularly those who cherish real-time information on the move, and who expect their finances to be integrated with and supportive of their day-to-day lives.
Businesses will benefit as it becomes easier to get timely access to funds, and government authorities will celebrate as GDP growth accelerates, and new lines of digital productivity are created.
The challenge of renewing long-standing infrastructure
But even the best laid preparations for infrastructure renewal don’t go exactly according to plan. I remember a story from last year about the attempt to demolish a dilapidated sports stadium in the U.S. city of Detroit. Video footage shows puffs of smoke encircling the Pontiac Silverdome after a partial implosion, however, the structure remains defiantly intact. The demolition company later said 10 percent of the charges had failed to go off, but never mind, the building should fall on its own – although it’s unclear when that will happen.
The day the new EU Payments Services Directive (PSD2) initiative goes live will obviously not be as visually dramatic as a stadium demolition. And the go-live of UK Open Banking on the same day is unlikely to captivate get TV viewers with its narrative, even if it is presented as a battle between the modernizing forces of renewal versus the stubborn inertia of an old infrastructure.
But January 13 will be remembered as the day regulators started to bring down the walls around traditional financial institutions.
Both the new EU Payments Services Directive (PSD2) and the UK Open Banking initiative have led existing banks to co-operate with third-party companies, which from now on will be allowed to operate financial services on behalf of consumers. These new companies will be able to access account information and to perform transactions on behalf of consumers, obviously provided they are granted explicit permission from the account holder.
Over the next few months, we will see new providers offering so-called ‘account aggregation’ services. Those of us with multiple bank accounts will be able to access all our private financial information in one place, without the need to log into separate applications. These providers are also expected to offer comparison services, showing fees, charges and features of different products. If consumers adopt these new services, our relationship with banks will eventually change.
We are also likely to see major retailers experimenting with new payment methods. As more of us become familiar with mobile apps and ‘in-app” payments, it seems natural for retailers to offer a ‘pay direct-from-bank-account option,’ particularly if this is more convenient and if loyalty offers make it more financially compelling to do so.
Is mass market adoption on the horizon?
How quickly will all this happen in the mass market? It may be difficult to observe whilst the dust settles around Open Banking; those in charge may be justified in saying ‘we pressed the plunger and most of the charges went off, but it’s unclear when it will all fall into place.’
There is also the danger that the inertia in traditional banking is not only down to the behavior of traditional banks. Citizens and consumers also have well entrenched behaviors and expectations. Academics and business observers will sometimes refer to the “Behavioral Economics” of change to explain why outcomes do not always go to plan, even when new incentives (financial or otherwise) suggest that consumers will flock to new products and propositions.
These behaviors are often based on powerful cognitive biases based on loss aversion. People will tend to carry on doing what they have always done, unless they are more effectively nudged, educated and better incentivized to change.
January 13, 2018 certainly doesn’t signify the end of banking and there is nothing to stop existing banks from becoming account aggregators themselves. But there will be few events in the retail banking industry as profound as the go-live of Open Banking.
Regulation mandates the open ecosystem in the short term, but there’s value in going beyond the basics. Find out more about how building a truly open payments platform puts you ahead of the competition when it comes to generating new revenue streams: www.aciworldwide.com/open-payments
Related Blog Posts
German Gamers Present Conversion Challenges for Game Publishers
Gamescom, one of the largest gaming shows in the world, is set to kick off in Germany in just a few days’ time – the perfect time to delve into some of the current trends in gaming that are revealed in our latest benchmark survey with Newzoo – and a chance to look at what sets German gamers apart.
Positive Profiling Makes Everyone a Winner in Gaming
Online gaming is one of the fastest-growing segments within the broader entertainment industry. With 2 billion active gamers worldwide and 200 million people playing games on social networking sites at least once a day, it is no surprise that the market is now worth well over USD $100 billion per year.
Top Tips to Battle Payments Fraud in Gaming—From a Millennial Gamer
The gaming industry, from a consumer point of view, has evolved dramatically over the last 5-10 years. The buying process has rapidly changed from a one-time, final payment – often at a physical store for a physical product – to a series of never ending bundles, boosters, skins, downloadable content and in-game currency sales!
Turning Impetus into Action: Real-Time Payments in ASEAN
Financial institutions across ASEAN member states are increasing investment in payments, with 64% planning to increase investment over the next 18-24 months, compared to 56% in the broader Asia region and 53% globally. With investment in ASEAN outpacing the global average, the “2018 ASEAN Payments Insight Survey” shines a light on the key drivers for increased payments investment and the expected benefits.
Instant and Digital: The Next Frontier of Bill Payment
We’d all like an inexpensive, simple and consolidated way to pay our bills, and we’re seeing a growing list of upstarts entering the market to meet this need. Customer interaction during the billing process is a critical touchpoint to maintain relationships and potentially enhance the customer experience, but third-party solutions that offer enhanced ease of use could get in the way. Companies need to respond with an engaging bill pay offering, which includes real-time payments.
Working Up An Appetite for APIs in Australia
This week ACI hosted the latest installment of our #paymentsforbreakfast forums in Australia, with the early birds catching the open banking worm in both Sydney and Melbourne.
Given the similarities between the Australian and UK open banking movements, we enticed ACI’s UK-based Lu Zurawski (Solutions Practice Lead - Retail Banking) to Australia to share his learnings from being heavily involved in the UK Open Banking working group.
ACI Watford runs first Coding for Girls Camp in Europe
The ACI Watford Office recently teamed up with local West Herts College to run its first Coding for Girls Camp in the UK. The free, one-day event was designed to introduce girls from year (grade) 7-9 to the world of technology, offering a crash course in computer programming; including HTML, CSS and Java. I spoke to Melissa McKendry, VP of retail banking implementation services and Watford Site Leader at ACI, to find out more.
Online Retailers Are Fighting Account Takeover Fraud Fires
Online merchants and retailers are facing an ever-growing threat from account takeover fraud, which is accelerating within the card-not-present space. Account takeover occurs when user credentials for a retailer’s website are compromised, leading to exploitation of a consumer and potentially offering a large return on investment for the fraudster. Per research from ACI Worldwide and Javelin Strategy, this type of sophisticated attack accounted for a staggering USD $5 Billion in fraud losses in 2017 alone. The card-not-present environment, due to anonymity, allows a fraudster to hide themselves in the act.
Modernizing Cross-Border Transfers with SWIFT gpi
The customer experience for domestic payments – retail and corporate – has recently undergone a complete transformation. There’s still plenty more that could be achieved, but the advent of real-time payments in combination with open APIs has seen the launch of Request for Payment services and direct eCommerce instant payments in the UK and Europe. And it’s not just the PSD2 push in Europe that’s driving change – in the U.S., Zelle is moving beyond standalone P2P payments to become an integrated part of the retail banking app experience, as well as being included in new kinds of corporate disbursements.
Payments in Gaming: The Female Gamer Powers-Up
The global games market is booming, with revenues set to reach USD $137.9 billion by 2021. But along with the growth, gaming is also transforming and diversifying; in genre, gaming devices, platforms, economics and demographics. Notably, female gamers are ‘powering up’ – representing 40% of paying gamers across all platforms – and there are implications for how gaming companies deliver their products and the role of payments in the overall customer experience.