Is open banking a boon or a bane?

Open BankingEvery conversation a bank has with its (potential) customer is a business moment for it to create a memorable customer experience.

Open banking converts such business moments into customer experiences by leveraging open APIs, the intelligent conduit that allows for the seamless flow of data using open source technologies. Envision the world’s future – from a ‘smart’ bank to a ‘smarter’ bank. From paperless banking to ‘bankerless’ banking.

In short, Open banking is the disruptive democracy of banking where you elect which party manages your finances by giving you full governance over your data.

Open banking, the gold standard of the future

Open banking is a benediction for many a reason. Its underlying benefits include, but are not limited to improved revenue streams, a new customer experience and the traction of a sustainable service model for underserved markets.

It will also be beneficial to SMEs and their lending parties. It would enable lenders to obtain and analyse detailed transaction data for efficient credit assessments and accurate risk decisions. It also prevents preferential pricing and pre-emptive pricing leading to a fair price for the borrowing SMEs.

The fact that developers, innovators and more recently, regulators, have propelled it on their banking services agendais a quintessential indicator of the future of Open banking.

Placing customers at the center of the value chain

Open banking has reengineered the banking landscape thusaccelerating the transparency, innovation and a greater choice for customers, thus driving banks, both incumbents and innovators alike, to place customers at the center of the value chain and henceadvancing a new era of customer centricity. This leads to data powered and personalised product offers which are attractively tailored to suit customer needs.

The curious connection of Open banking and Ecosystem driven business models

Business models founded on ecosystems become business critical for Open banking as regulator driven innovation appends collaboration into the value chain. This enables banks to build innovative customer outcomes with partners.

Open banking and the Elephant in the Room

Like any other industry, open banking has its fair share of skeptics. For instance, let us assume you have given an app consent access to your savings account at Standard Chartered and account data with Santander and your partnered joint account with Lloyds. The idea is to collate everything to a single glance screen to help you plan, save and budget your finances. Given that even an Experian can be hacked, there are high possibilities of these FinTech apps being hacked. Add to it things which are not in their hands like device model, OS version, user gullibility, etc. Now who is liable – the banks or the third party apps? Finding the truth would be a lot of running around. And those who would do the running around would find a nightmare of an answer – the gullible end user of course. Besides, these apps have a frugal capital of around 25 million pounds, so a financial lawsuit could shrivel to nothing in no time.

Even if they claim to have insurance, a loss to many users will make the insurance too little and too late. Only the government has the resources to truly rescue such a financial system. But governments have a history of rescuing only the systemically significant ones like Lloyds and RBS. The other smaller players have to eventually bite the dust.

There will be a lot of vulnerabilities and bugs leading to software patches and ‘improved’ versions. The users will never be aware of it. They will only know of the colorful branding and app designs. Even the FinTechs would not know of it unless it is illuminated by the hackers, thus darkening the lives of users, the unassuming lab rats.

Multiple dimensions and a multitude of problems

Consider the above problems with the eventual complexities like Joint account holders, Countries, Geographies and Laws of State, System maintenance. The problem then gets compounded. For instance, a system is vulnerable to hacks when under maintenance. This is when the hackers hound around the no man’s land. Somebody ploys a hack when all these organisations are under maintenance at the same time, now who is to blame?

Align it with recent problems like Brexit and GDPR. Now it is problem squared. In countries like USA, each state law differs from the other and during a dispute, the state’s law holds more power than the center’s one. Now it is problem cubed.

 Now when the account holdee is in one country and functions his open banking services in another country, how do we account for this? How about Joint account holdees in different countries and/ or different citizens? Besides there is a gaping hole for criminal activities and black money hoarding. This is problem to the power of n, and so on, and so forth.

App CopyCat

We will be witness to a hoard of rash copy cat websites posing as the consenting third party app, with strikingly similar websites and app names. This is a challenge many will fall prey to. This is easy access to customer money.

Millennial Mindset and Regulatory Compliances – Change Gears!

Open banking comes as a pleasantly surprising challenge, even to the millennial. People tend to take it with a grain of salt because of the abstract laws. Regulatory compliances also have to be more well-defined and span geographies. Both are correlated and one will spur the rise of the other. Directives like the PSD2 and CMA compliances are gaining traction and more such laws and governing bodies will certainly catalyse open banking as a thing of the future.

Like many ideas to emerge in the digital era, open banking has its boosters and skeptics. Well, is open banking a boon or a bane? A few years back, I would have liked to say that your guess is as good as mine. But after informed research, we can infer that the fair points outweigh the pain points in the ratio 4:1.

The millennial banking trends of the pastare clear indicators that disruptive ideas find their way out of pain points at the blink of an eye. The initial apprehensions of trepidation and testing waters eventually clear up sooner than later. Open Banking would give a competitive edge based on the bank’s ability to manage risks, compliance, and customer needs. Hence, Open Banking is certainly a benediction which would gain traction in no time.

The views expressed in the article are of Srini Peyyalamitta, Head of Banking & Financial Services at Aspire Systems

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