Open banking is here to stay. Over the last couple of years, both the banking and payment industries have seen rapid change in the market landscape.
Developments like PSD2 – with its establishment of PISP and AISP licences – have given rise to a slew of challenger banks, alternative financial service providers, as well as financial management and monitoring apps.
While these can only lead to more positive improvements in the long run, can everyone currently involved in the value chain – banks, tech companies, and customers – all truly benefit?
Let’s take a closer look.
There can be no doubt that since the introduction of PSD2 and – in the UK, the Current Account Switch Guarantee – banking as an industry has moved squarely towards serving customers better.
Not only do customers have a lot more choice – they’re also benefiting from the fact both legacy and challenger banks are incrementally improving existing products and services in order to stay competitive.
From a user perspective, open banking has also been a catalyst for digitisation. The emergence of mobile- and digital-first banks – like Monzo, Revolut, and N26 – are testament to that. They offer a user-friendly array of payment and banking solutions; alongside a better customer experience.
Plus they’ve put a lot of effort into getting the user experience right – designing and developing apps that can hold multiple cards, currencies, and even crypto.
Because of this, established bank and financial services businesses – are constantly playing catch up. Not only are they lagging behind where technology’s concerned, they’re also more likely to be relying on established preconceptions of the market; as opposed to more dynamic data collation and segmentation.
However, they’re still seen as trustworthy and financially stable by consumers – according to research. As a result, rather than completely abandoning their current accounts, more and more people continue to use traditional banks – albeit in tandem with a ‘neobank’ account.
Overall, competition only serves to benefit users as their value increases to all parties involved in the fight to win their business.
The rapid development of new technology has ultimately been the result of fintech brands looking to enter the market with new products and services – and doing their best to actively target and engage with prospects.
At a staggering $90 trillion, the global banking sector is an enormous market which any tech company should be excited at the prospect of being able to tap into.
However, despite the enormous opportunities banking offers, given the historically slow rate of change within the sector, coupled with the regulatory and governance changes – the barrier wasn’t as high as in sectors like retail, for example.
This is precisely how smaller fintech companies have been able to innovate so quickly – and both seek out and obtain financing for further expansion. For companies like these, targeting open banking within the financial sector can in some ways be seen as a highly effective and profitable growth strategy.
Because of shifts in customer attitudes, open banking has given tech companies a rare opportunity to work more directly with banks too. Seeing customer demand for more control has prompted many established banks to dip their toe into the tech space – meaning that tech companies themselves are offering them guidance on how to futureproof their solutions.
While the pandemic has no doubt had some impact on broader interest in fintech, banking is a market which is set to continue along a steady growth trajectory – and so should be looked upon as a stable sector for tech companies to enter and do business in.
While it might seem that existing banks have been given a raw deal in all of this, the fact is, many had it too good for too long.
Increased competition is no bad thing, and while their hands have been forced to some extent, they now have a unique opportunity to truly understand their customers’ needs and create a more meaningful relationship with them – based on their preferences.
Banks understand that if they want to remain the gatekeepers, they need to appeal to new generations of users.
They can do this in several ways:
In all cases, nurturing a culture of innovation within their organisation, making better use of data, and seeking to foster new relationships outside of the relatively closed banking sector can all provide new opportunities for banks to thrive in a digital world.
Ultimately, through greater collaboration, banks and their tech partners can use their greatest assets to drive innovation in a way that benefits them and the end user.
No matter which party you look at within the financial sector, everyone stands to gain with the advent of open banking. It is here to stay and should be something that banks as a whole get to grips with. If the past few years have taught us anything, it is that even markets which historically have lagged behind wider trends can change very rapidly if there is strong enough market demand.
Users want more control, more personalisation, and more choice. Open banking offers all that and more, giving tech companies and banks the chance to develop a competitive edge. We might not be able to predict who the providers will be, but we are confident that tech companies who do align themselves with customers’ needs and desires will be the ones at the top of the pile.