Posted on: Thursday 5th of October 2017
In the first of a series of guest blogs ahead of PIE 2017, Brad Goodall, co-founder of 10X, looks at the potential impact of Open Banking. You can hear more from 10X at PIE’s Future of Finance session, which will look at how a traditional sector could be set for significant disruption.
Open Banking is set to transform the banking industry, and it will do so before many have had a chance to take stock and realise what’s happened. For some this is a great opportunity, for others it’s a rapidly approaching threat. More than a few established banks are sat playing on Open Banking’s tracks, largely unaware of the highly disruptive train heading straight for them.
Although its implementation and fine print may seem complex, Open Banking can be simply understood as creating a more transparent, competitive industry. It will give consumers more control of their data, making it easier for them to find banking solutions that offer the best value and best fit for their needs. It will also force large banks to open their data, meaning it can be accessed by rival companies.
This is highly dangerous for traditional banks, who have a shark pool of younger banks circling around them. While traditional banks have been sat on their unwieldy, complex data banks, challenger banks have set about creating digital-based, highly agile structures. They may not have had the scale of the establishment, but they have been able to build intelligent businesses. Now, they will have access to older banks’ scale, without any of the burden that comes with it. Challenger banks will be able to use this enormous amount of data to create smart new services and attract new customers.
For traditional banks, this presents a host of challenges, none more significant than getting their data in order so that they can utilise before others do. Already, major UK banks are trying to modernise and streamline their data. However this is a huge undertaking, since it involves raking through years of backdated, disjointed data sets as well as time consuming and costly reconciliation processes.
Not only does this leave banks ripe for Open Banking’s disruption, but it makes it hard for them to hire the staff who could do something about it. Today’s young digital banking whizzes expect to work for a company with organised, and therefore more powerful, access to data. They balk at the idea of working at a bank built on legacy technology and have little desire to battle with archaic coding.
This means that the best staff are clamouring through the doors of challenger banks, even if it means a lower salary. Employees at challenger banks benefit from well organised data and can leverage modern technology adoption and rapid application. They also never have to worry about greying suits telling them “we’ve always done it this way”.
However, Open Banking is not necessarily a death sentence for traditional banks. Nor is it a guarantee of success for challengers. Instead, it is an opportunity for all-comers to reinvent the business model of banking. It is a call for a new design, one that reassesses the ways in which banks target, service and inspire customers. Indeed, this may come from a partnership between a traditional and challenger bank, or perhaps from an even more unexpected pairing.
Open Banking will place a premium on trust, this means that there could be a role for brands that are trusted by certain sections of consumers. For instance, Lidl may be able to attract customers to a banking offer that understands the pressure of a tight budget. Meanwhile Tesla could become a bank for the well-heeled and socially conscious.
Whether Lidl and Tesla would actually deliver the banking, or work with an established bank, is up for debate. The point is that digitalisation and Open Banking will allow for new levels of trust-dependent targeted customer service, which may flower in ways previously unimaginable.
What is clear, however, is that it’s time for established banks to wake up. Yes, they are modernising their data. But this may be the equivalent of shifting chairs on the deck of the Titanic. They must do more, they must move with speed, scale and imagination. For large banks, now is the time to realise the existential threat posed by Open Banking. They can either act, or risk being flattened by a train that is heading straight for their bottom line.