By Adrian Bridgewater for forbes
Online banking is changing, everywhere in every world nation… and developments in the UK could soon be reflected in the USA elsewhere. Recent reforms in so-called Open Banking have been pushed forward by the UK’s Competition and Markets Authority’s (CMA) to ensure that older bigger banks don’t get the lion’s share of customers simply as a result of their sheer footprint and weight.
The CMA says that older and larger banks do not have to compete hard enough for customers’ business. This means that smaller newer banks find it difficult to grow. This in turn could mean that people are paying more than they should and are not benefiting from ‘innovative’ technological advances and new services that maverick younger organizations might be more willing to try and bring to market.
How banking is changing
Among the changes seen in open banking will be new rules requiring banks to publish ‘trustworthy and objective information’ detailing the quality of service on their websites (and inside physical branches), so that customers can see how their own bank shapes up.
The CMA stipulates the following, “[New key measures will require] banks to implement Open Banking by early 2018, to accelerate technological change. Open Banking will enable personal customers and small businesses to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cash flow) and to compare products on the basis of their own requirements.”
This being the socially connected mobile app-centric age, other reforms aim to use technology to the advantage of us the customer. Banks will be required to send alerts to customers going into unarranged overdrafts and inform them of a grace period, to avoid charges.
Duncan Ash is senior director global financial services at Qlik, a data analytics firm serving all of the top 15 banks based in Europe and North America.
Ash suggests that this legislation gives software application development professionals at companies like WhatsApp and WeChat an opportunity to build applications that source data from a user’s bank account and use it to provide an enriched service for customers.
Will banks loose their grip on us?
Could this in fact puts older died in the wool banks in a difficult position? Think about it — it arguably loosens their grip on the customer relationship, which up until now, they have mostly owned.
Ash believes that banks won’t be keen to hand over access to this level of information for free. He says that banks will find it tough to keep up; many will have to develop and evolve their personal mobile offerings, while we could see others buying those FinTech firms that have already stolen a march.
According to Qlik’s Ash, “One way in which they could defend themselves is by building analytics into the open Application Programming Interfaces (APIs) they’re being forced to build. Doing this would mean that they would be able to tailor their offerings to customers based on preferences. For example, through signals sent from the API a bank would be able to see if a customer was spending more time than usual looking at his or her mortgage account. This tells the banks he might be considering switching that mortgage and is a signal for them to get in touch.”
Ash goes on to explain that the API data will be further enriched when combined with demographic, risk and profitability data; resulting (potentially) in a better understanding of customers and more targeted marketing campaigns.
“The firm owning the customer experience will command the lion’s share of the revenue,” concludes Ash.
Embrace the digital revolution, or else
Peter Roe, research director at TechMarketView comments further on this story and says that this is effectively a case of forcing older more established banks to embrace the digital revolution. He says that the smartphone is a ‘fundamental enabler’ of the digital revolution and that this puts further pressure on the bank’s legacy technology.
According to Roe, “The average monthly number of customer interactions with their bank has grown by 50% in the past five years, to 3.5, but the BBA expect that this number will increase by 80% over the next five years, driven by mobile. As the smartphone is increasingly used for more sophisticated transactions (particularly by younger, tech-savvy customers) this will likely require significant further investment in the banks’ mobile apps portfolio. If a bank has not yet adopted agile development techniques, a good partner ecosystem and a robust mobile platform which can facilitate rapid service innovation, they’d better hurry up!”
Who is responsible here?
The responsibility here lies (obviously) with the banks and their willingness to grasp the nettle and embrace the digital revolution. The responsibility also here lies (somewhat pleasingly) with the developer/programmer and the data scientist/engineer as the key innovators who can make our banking systems fit for the smart cities of tomorrow.
Banking is changing in the kind of same way that the legal trade is changing i.e. connectivity, mobile and data analytics are ripping apart the legacy systems of old.
Some say that people even used to write down banking transactions on paper based books called ‘ledgers’, but that’s probably just a joke that old bankers like to tell at dinner parties.
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