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What will the year ahead hold for the banking sector? While there are all sorts of suggestions for what banks will need to look out for in 2018, one factor that they may need to pay particularly close attention to is the rise of a new type of competitor – one that will already be familiar to most customers.
In 2018, it is large, established technology firms – the likes of Facebook, Amazon and Google – that are expected to have a major impact on the financial services market. One key reason for this is changing regulations in key markets, such as the implementation of Payment Services Directive 2 (PSD2) in the EU, which will open up the banking sector and make it easier for these firms to compete.
Some forecasts have been predicting this for a while. Last year, for example, a report from the World Economic Forum highlighted the potential for the likes of Google and Facebook to disrupt the industry. Now, with the backdrop of a friendlier regulatory environment, 2018 could well present the opportunity these firms need to step up their game.
Why big tech could shake up the market
While agile startup fintechs have been positioning themselves as challengers to traditional financial institutions for several years now, they often face an uphill task to build a trustworthy reputation and create a recognizable brand. But larger tech firms will already have a huge potential customer base among their existing users, who will already be comfortable interacting with them.
As well as this strong brand recognition, another key aspect in tech firms’ favor is the enormous amount of personal data they hold on their users. At a time when personalized services are something every bank should be aiming for, the detailed insight into individuals’ preferences and circumstances that tech firms have access to can be an invaluable asset.
In the ‘open banking’ era, where consumers will be encouraged to share more of their personal financial details in order to get a better deal or a more tailored service, the easy access tech firms have will be hugely important. However, it is not just access to the data itself where they may benefit, but how they use it.
The likes of Google and Facebook have access to some of the most powerful analytics tools available, and are pioneers in technologies such as AI to help interpret data and meet the needs of users. These firms can operate at a scale all but the biggest banks can only dream of, which could make them a serious challenger in a number of areas.
What could it do for consumers?
One of the most popular use cases that tech firms are expected to tap into is payments. There is already a certain level of integration in this area, with people able to send money to their peers directly through an instant message or via Gmail, but the opening up of the banking system could allow financial firms to make this easier and more convenient for users.
Similarly, when it comes to everyday activities such as checking balances, open banking could be transformative. For example, a report by Arma Partners suggested that if a firm such as Google or Amazon is able to gather customers’ banking info via APIs as a result of PSD2, it could remove the need for people to log into their bank’s own app. In this scenario, it would be easier for them to simply ask Alexa or Google Home what their balance is, or even initiate money transfers via virtual assistant voice command.
It’s perhaps still early to know what impact, if any, technology firms will have on the banking sector, but if past history is any indication, there is the potential for significant disruption, so banks will have to be prepared.