The concept of ‘open banking’ has been gaining traction around the world. The fundamental aim of open banking is to improve customer choice and competition in the financial services industry through the more widespread sharing of data and better use of technology.
In the UK, for example, it has been proposed that customers and small businesses should be able to share their data securely with other banks and third parties. This would allow them to take more control of their financial situation and hold accounts with multiple providers.
This focus on boosting integration and tackling fragmentation in financial services could lay the groundwork for a new-look industry in which omnichannel banking is more important than ever.
The journey towards open banking
Towards the end of 2016, we saw some significant progress towards open banking. The UK Competition and Markets Authority (CMA) said it was “taking the next step towards introducing open banking“, as it launched a consultation on 17 proposed reforms to “make banks work harder for their customers”. The CMA wants banks to be ready to start implementing open banking measures by early 2018.
In Australia, meanwhile, the House of Representatives Standing Committee on Economics tabled its first report on retail banking as part of an ongoing review of the sector. One of the key recommendations to the government is that banks should be forced to open up access to customer data by July 2018, making account switching easier.
These measures received a mixed response, with the Customer Owned Banking Association (COBA) saying there must be a distinction between changes that are “unambiguously pro-competitive” and those that could in fact limit competition by placing additional pressure on all banks.
“For example, recommendation four would force all banking institutions to embrace ‘open banking’ in barely 18 months despite concerns that this could be ‘prohibitively expensive’,” said the group’s chief executive officer, Mark Degotardi.
“COBA’s view is that ‘open banking’ has tremendous potential to empower consumers but forcing all banking institutions into an unrealistic implementation timetable would just harm competition.”
Promoting omnichannel in a more integrated industry
There is much scope for debate about the financial and practical demands of open banking and the timetable of its introduction, but it’s clear that banks need to be prepared for the impact this concept will have on the industry.
Open banking is just one example of how the financial services sector is becoming more dynamic and integrated. Challenger banks and fintechs are stimulating competition and giving established institutions more opportunities for collaboration. In the EU, the gradual implementation of PSD2 over the course of 2017 will open up the payments market to new, innovative competitors.
For financial institutions, these changes will mean increased customer expectations for a consistent, coherent experience across all channels and technologies. Omnichannel banking will be more important than ever, because consumers will become increasingly accustomed to using various methods and platforms to manage their money.
Furthermore, delivering a genuinely omnichannel experience – one that gives customers the flexibility to start a transaction on one channel and continue it on another, for example – could prove crucial to staying ahead of the competition.
Today’s consumers want choice, and with so much focus on increasing competition in retail banking, banks will need to offer a rewarding, relevant omnichannel experience to maintain and expand their customer base.