Blink and you may have missed it…
Last weekend saw potentially the biggest shake-up in banking regulations since the introduction of online banking. Blink and you may have missed it.
Open banking, one of the biggest developments in consumer banking in decades, has ironically stayed below the radar of the majority of consumers. In fact, a Which? survey from back in September last year showed 92% of the UK public hadn’t even heard of it.
The new rulings are now in place, with many none the wiser – so what’s changed? And how will it impact the market?
Open Banking, in Layman’s terms, is part of new legislation to put customers in control of their finances. The new rulings will mean that the nine largest current account providers in the UK must now allow third-party providers (TPPs) safe and secure access to user’s accounts once consent has been given – to either gather transaction data or initiate payments on the account holder’s behalf. It’s delegated authority for your bank account.
This will inevitably give customers more control over their data and support an emerging market of new, exciting third-party apps and services capable of straddling several customer accounts across the financial services industry. Open Banking will finally give customers the ability to see all their financial information in one place, and with that enable them to make smarter decisions on how they spend.
You are likely to have heard open banking uttered in the same breath as PSD2 (the revised EU Payment Services Directive), so it’s worth clarifying the differences.
‘Open Banking’ itself is a requirement from the UK’s Competition and Markets Authority (CMA). Specifically, the directives require an open API standard is adhered to by the chosen banks. These requirements coincide with PSD2, which requires all payment account providers to provide TPP access, but with no explicit ‘open’ standard.
The long and the short? Open Banking directives, designed with the legal framework of PSD2 in mind, go one step further to giving customers control over their data.
Phew… now that’s over with – what does this mean for the financial services market and in particular, the insurance industry?
The battle for interaction
By giving the customer greater control over their data, Open Banking will begin to pile the pressure on banks and Fintechs to move into the ‘financial management’ space and compete to own the personal finance domain.
Whilst high street banks currently own the customer interface with their account holders, fast-moving TPPs offering sexy intuitive apps are likely to win the interaction battle as customers become less wedded to their banks, which garnered little trust in the first place.
As customers shift their interactions to new user interfaces with the power to scrupulously analyse spending data and initiate payments, a whole bunch of opportunities arise for new and established financial service providers alike.
Imagine a world where, given the appropriate consent, insurers use a customer’s financial data, combined with personal data, to improve the accuracy of underwriting and the relevancy of their product offerings. Open Banking makes this possible.
Threat or opportunity?
It only takes a moment of blue-sky thinking to realise that where opportunities arise, threats do too. Given an unparalleled level of access to data, alongside authority to directly initiate payments, TPPs will soon be able to make the process of switching to a better energy, utility or insurance deal something you could literally do in your sleep.
As automated comparison and switching becomes the norm, insurers will need to improve not only their pricing but also their value of service beyond monthly premiums to remain competitive in a market with increasingly finer margins.
If you’ve not made your move yet, hope is not lost.
Never too late
As an insurer, to capitalise on the Open Banking movement and avoid the threat of disruption, embracing the move will be the key to success. Partnering with TPPs with established user platforms is a great way to book a spot on the train, but finding the right company and the right deal is crucial. Many of the TPPs with strong tech platforms making a name for themselves in the Open Banking space right now are treading carefully, waiting for the right opportunity. Strategic partnerships and financial investments need to appeal to both parties.
Alternatively building a team internally to create a free-standing interactive tool for customers with a competitive user interface is the perfect way for a business to carve its own path, in a time where customer interaction is of ever-increasing value.
Whatever the chosen route, if insurers embrace the latest directives, Open Banking will no doubt have a positive impact on the industry.
Giving customers more control over their financial data seems like a no-brainer, with both customers and service providers able to capitalise. But what if the same concepts were to be applied to the world of insurance data?
As customers demand more control over their data and information, Open Banking may well pave the way to changes in insurance regulations. If I can share my financial transaction history, why shouldn’t I be able to share my driver behaviour data collected in my car’s black box with other insurers?
If new laws were introduced requiring data held by insurers to be available via open APIs, how would the market respond? A move of this nature would most certainly make the market a more competitive environment than ever before, but where threats arise, as do opportunities…
Open Banking is an exciting prospect, and although 2018 may not be the year that the movement takes roots, we will surely see whether it’s able to live up to expectations.
Ultimately its impact depends upon whether established players are willing to embrace the potential of data streams available and create products of true value for their customers.
SØNR ONES TO WATCH
Below we’ve listed some of the exciting ventures taking advantage of Open Banking legislation right now. To find out more about how you can use Sønr to keep track of the latest trends, insights ventures and more, please get in touch here.
A mobile tool which analyses a user’s finances to identify opportunities to make their money go further.
Mespo partnered with API experts Salt Edge Inc. in 2017 to allow customers to analyse their financial data across multiple bank accounts. The app is set up to integrate with all the major UK banks, but is still waiting for banks who have conveniently missed the deadline for launch…
Yolt provides an easy and enjoyable way to manage money from your UK bank accounts in one single app.
Set up by Dutch banking giants ING, the app gather information on your accounts and spending to predicts future spending giving users a “smart balance” – i.e. what you really have to spend or save after forthcoming credit card and household bills are taken away.
TrueLayer is a startup that builds financial apps that can connect to bank data, verify accounts, and access transactions in real-time.
Launched in 2016, the venture has received funding from Anthemis Group, Connect Ventures and Graph Ventures, amongst others. It plans to expand across Europe in 2018.