Towards the tail end of last year the UK Competitions and Markets Authority (CMA) unveiled its recommendations to make banking more open. It was hailed as a “revolution.”
Over the next 18 months it is set to deliver substantial changes to the framework of where, how and with whom we bank and ultimately how we manage all of our financial affairs.
So what is happening?
The CMA changes are already substantial, but in addition to those there is also the PSD2 – a revision to the Payment Services Directive – designed to further increase competition and innovation and provide a more open and efficient electronic payment market within Europe.
The approach will allow customers to release their banking information to trusted and authorised third-party providers.
In short, it will open the door to Fintech companies and the banks themselves to innovate new ways for us to manage our finances, providing greater ease and convenience, new ways of paying and a whole world of new service opportunities.
At first, starting in Q1 2017, it will be things like branch locations and product descriptions. By the first or second quarter next year banks will have to provide a thing called an open API to allow third parties to do things a whole raft of new and exciting service opportunities.
What is an API?
An API (Application Programming Interface) allows computer systems to directly exchange information in a secure way, in this case between banks and authorised intermediaries.
APIs are actually something many of us use regularly already, even if we don’t realise. For example, if you book a flight online using a third party service like SkyScanner, its computer system contacts the airlines’ computer systems to ask for flight data like times and prices. That information is accessed securely via the airlines’ API.
So what will it mean for you and your finances?
It has been described as an “Open Banking revolution” So it’s going to mean some substantive changes. Really it is about bringing retail banking into the digital age.
The obvious opportunities include the ability to:
- Manage several bank accounts from a single digital app.
- Authorise automatic transfers between accounts to maximise interest payments.
- Allow customers to make quick and easy bank price and service quality comparisons.
- Switch and open accounts more easily.
- Monitor and forecast current account cash flow to avoid overdraft charges.
Those are really just a few of the many changes.
But the full impact of how it will affect customers depends on the creativity and imagination of the third party providers or the banks themselves, in terms of how they use that information and the services they create.
Nile Principal Experience Designer Neil Collman looks at some of the possibilities the changes may unlock.
Some of the possibilities might include drive-through supermarkets, or other types of retail transactions, where your car is enabled and authorised to make the payment without you have to get your card out.
Proving your income for things like mortgage and loan applications might no longer involve having to photocopy and post bank statements.
So is it bad news for banks?
On one hand, the changes are designed to increase competition but on the other hand it does also provide new revenue opportunities for banks too.
It’s likely to change some banks’ relationship with customers. They are going to have to make sure they are customer focused and using the API to generate competitive new services that customers want to use.
The key advantage for banks is that they already have us as customers, so that’s a big difference over third party providers many of whom need to generate new business.
It’s a phenomenal business opportunity for banks and Financial Services companies old and new. But whoever wins, we as customers seem likely to see the introduction of a whole new, enabled way of banking.