Whether being driven by regulation, as is the case in Europe, the UK and Australia or by the ambition of global technology giants like Alibaba and Google, data sharing is coming to the banking industry.
In a report global consulting firm Accenture explains that under Europe’s revised Payment Services Directive (PSD2) banks must make raw account data available to third parties via a set of standard open application programming interfaces (APIs). It means bank customers will be able to share access to their financial data with third parties, including retailers, fintechs and other banks, so that these third parties can integrate their services with those of a bank. Equally, banks can easily incorporate product and service features from third-party partners into their own offerings.
Already new financial services ecosystems with data-driven tailored solutions are emerging that are transforming the customer experience. At a recent presentation, Accenture gave examples of niche players that are creating such ecosystems and growing their market share in the process. US Bank, for example, is linking student transaction accounts and debit cards to university campus ID cards, so combining an ID card with an ATM card that can also be used to make debit purchases. Likewise, Singapore’s UOB is enjoying great success by essentially creating a combined banking, retail and service ecosystem for young professionals in Asia.
Reciprocity in Australia
Under Australia’s new Consumer Data Right, when directed by their customers, Australia’s four largest banks must be ready to share data about their customers’ credit and debit card, deposit and transaction accounts by 1 July 2019. This will extend to all products by 1 July 2020, or 1 July 2021 for all other banks. Preparations for Open Banking coincide with the Australian Prudential Regulation Authority formalising a streamlined path to a restricted banking licence. The combination could provide both the incentive and the access for a flood of new entrants.
However, Graham Rothwell, Accenture’s Managing Director, Asia Pacific Payments, notes that whereas the data-sharing obligation is one-way in Europe, in Australia it is a two-way street.
“You can tap into a bank’s data but you also have to open up your data to the bank so that makes it different in Australia,” Graham says.
This reciprocal obligation to share data is likely to conflict with the aspirations of many fintechs and the global technology giants to the extent they see "open data" as a threat to their own globally relevant intellectual property.
Who will disrupt banks in Australia?
The Consumer Data Right will eventually apply across the economy, with the energy and telecommunications sectors slated to follow the banks.
So is it possible that other large organisations with big customer bases such as telecommunications companies Telstra and Optus, energy retailers AGL and Origin, major supermarkets and national airlines will see huge potential to create new revenue streams and build customer loyalty by overlaying their own rich customer databases with the banks’ customer data to offer financial services?
Or will the disruptors come from offshore? ING, for example, launched in the UK in June 2017 in preparation for the UK’s Open Banking Initiative, which came into effect on 13 January 2018. It very quickly gained a foothold among consumers with its money management app, Yolt. It connected with Runpath and Moneytis so that users can look for better deals across top UK energy providers and more than 300 international exchange providers. It has also connected with Starling Bank. By December 2017, Yolt had 100,000 registered users. Or is Australia’s scale insufficient to be compelling for global players to apply their business models here and risk giving up an element of their IP in return?
Given the aforementioned success of niche players such as US Bank and UOB, will any of the regional banks or mutual banks be able to leverage the big banks’ data to create their own niche ecosystems? Teachers Mutual Bank, a member of the Global Alliance for Banking on Values, might form partnerships with like-minded organisations to develop an ecosystem that appeals to people who value its community and sustainability investments.
Banks have been willing and able to collaborate with fintechs. To succeed in the world of Open Banking, collaboration with the world beyond financial services will be paramount.