The big UK banks talk about open banking successes and failures so far

Representatives from five of the biggest banks in the UK talked about their biggest wins and losses since the open banking regulation kicked in

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Last week during the Open Banking Expo in London, representatives from five of the UK's biggest banks shared their greatest success stories and key remaining challenges since opening up their customers' data.

Since coming into effect on 13 January 2018, the UK's open banking regulations have seen the nine largest current account holders in the country – called the CMA9 – open up customer data to approved third parties via a set of secure application programming interfaces (APIs).

On top of this, banks must also comply with the European-wide second payments directive (PSD2), which came into full effect on 14 September 2019. Mandating all the major banks had to comply with the Regulatory Technical Standard (RTS), which includes an open API for third parties to connect to. That being said, the implementation of strong customer authentication (SCA) mandated under PSD2 has been delayed unit at least 2021.

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The dream of open banking as it was first conceived was to give consumers more choice, and force the whole financial sector, from the big banks to smaller fintech startups, to collaborate and innovate using these newly open data streams. As you will see shortly, many of the big banks don't think this dream has been realised just yet.

Early success stories

Speaking during a panel discussion last week, the representatives from some of those CMA9 banks shared their early wins after implementing open banking APIs.

"I'd actually say it is about culture. We all talk about innovation and partnerships, but in the open banking space, actually, what HSBC both in the UK and Europe has done has been all about partnerships," said Hetal Popat, head of open banking and PSD2 at HSBC.

HSBC was one of the frontrunners when it came to taking open banking and turning it into something customers could get their hands on with the Connected Money app it launched in May 2018, before cherry-picking the best features and folding them into its core online banking app in June this year.

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Popat puts the success of that application down to the bank's open approach with partners. "That was all done in partnership with other firms, very little of the build was within HSBC," he said. These unnamed fintech partners "move faster, do things cheaper and bring new ideas and approaches into the firm," he added.

HSBC has also been using open banking data to underwrite customers for credit products. Popat sees this as the clearest business case for open banking so far, and one of few monetisable ones.

"We've seen acceptance rates materially increase for the obvious reason: there's a lot of customers out there in the UK who are perfectly creditworthy, but the data the bureau has on them is limited and therefore, due to a thin file, banks may say no. Now we get more data, we can say this customer is creditworthy and offer a loan," he said.

Popat added that simple account aggregation within mobile apps and spending breakdowns "have commercial value in terms of building customer relationships, but that's a slow burn, and whether you can ever really monetise it, or it just becomes hygiene because everybody offers it, I think has yet to be proven."

Building partnerships

Mark Curran, the newly appointed director of technology transformation at the beleaguered TSB Bank, also spoke about the value of building new partnerships with smaller, innovative fintech companies.

"The biggest resounding success I've had is actually spending time out in the fintech community, and trying to identify those fintechs that have something really cutting edge versus of a lot of the 'me too' offerings," he said.

Soeren Rode Andreasen, chief digital officer at Danske Bank – which has a significant presence in Northern Ireland and is a member of the CMA9 – still thinks it is too early to talk about success or failure though.

"The reality is that very few customers have ever heard of open banking," he said. "When I run through all the different use cases, there are very few that we actually see a benefit or need for it."

It's not all doom and gloom though, and Andreasen has also seen the value in working with a growing pool of partners since the introduction of open banking. "From our point of view, where we've had the biggest success with open banking is actually the maturity it required the organisation to have in relation to work with untrusted partners," he said.

RBS has also been able to better work with fintech partners over the past few years. In a separate session at the same event, Daniel Globerson, head of open banking at RBS said: "It's great to work with a third party today and they can connect directly to our API's or a sandbox with the same functionality, knowing that if we like what we're doing together, we could probably put that live in no time at all, leaving aside legal and branding.

"That's a great opportunity, not just for us, but also for fintechs, because historically, when large companies of any kind worked with smaller companies, it was challenging."

Technical issues

Globerson has also found some early success in the way the regulation has forced the bank to modernise its systems. "We've long held a belief that we'd like to API-enable the bank, we want to modernise the bank, we want to have instantaneous connectivity internally and externally so that anytime we want to try something new, put something into production, connect with customers, connect into different customer channels, that would be as easy as snapping our fingers," he said.

"The challenge is, as part of a big institution and – sorry – an incumbent, as we are, this is pretty heavy lifting to do. From that perspective, open banking provided an opportunity for us to do something we wanted to do and helped a bit with priority and funding."

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Lana Abdullayeva, payments innovation and policy director at Lloyds Banking Group, also sees the cultural shift open banking is driving as one of the key successes of the regulation so far.

"We really invested in building the team and new skills and new approaches. I'm very pleased that we are here and moving towards non-traditional approaches to programme management, to product management, and how we develop new propositions to customers," she said.

That being said, Globerson recognises the inherent challenges in a project of this kind for the big banks. "For banks contemplating going fully into this world of open banking and API enablement, the architectural change is significant," he said. "There's a lot of complexity in exposing pipes which were built for purpose."

RBS has been able to show dividends from taking this approach however, creating two new standalone digital propositions for customers since the inception of open banking. Mettle, which was launched under the Natwest brand earlier this year, is a business banking app built to compete with the likes of Tide and Coconut. Then there is Bó, a digital current account product which will go head to head with the likes of Monzo and Starling once it comes out of beta.

The remaining challenges

In terms of challenges, Popat at HSBC was the more straightforward, saying that the regulation has "cost a fortune and soaked up a huge amount of technical capacity which could have been potentially used for more interesting things."

Popat called on the whole ecosystem of banks and fintechs to "move away from the idea that regulators are going to tell you what to do and everyone's going to march off and do it and it will be perfect. We need to move towards an end-to-end ecosystem, which is highly resilient and has all the parties working together. That takes time and is going to take an enormous amount of coordination between parties."

The financial burden of the regulation was a theme picked up by Abdullayeva at Lloyds. "I think innovation by enforcement is something that, perhaps, we didn't see before. It led us to spending money, collectively creating something very new and as inevitable there were lessons learned," she said.

"I think where we are moving towards and maybe what we learned from the past and what perhaps all my fellow speakers are echoing here, now is the time to focus on customer experience and security and focus on the ecosystem that was created, rather than individual propositions and let the market take up that space to create those propositions."

Curran at TSB was in full agreement. "When you open up so much of the environment, the safety aspect starts to overtake the entrepreneurial aspect," he said. "I think that's where we've got stuck ... because the idea of the whole world changing for every consumer and business in the country on the 16th of September [sic], actually as you step back and look at it you think what were we smoking?"

Popat returned to the very concept of open banking as it was intended. "Remember the point of this is not for the banks to be innovators, the point is that there should be fintechs who are supposed to be the entrepreneurs and innovators, you're supposed to be building on top of us, not us using you as middleware and offering propositions, that wasn't the dream the market had," he said.

"So far I can't think of any commercially sound propositions in the market," he added. "There's nothing out there that I've seen that is actually making money because of the open banking rail. Has anyone got a commercially viable proposition that they can launch using what we have built to date? If not, we should be very careful about putting more into it. Or we need to give the market time to develop those propositions, because I'm sure they will; we are only two months after the PSD2 live date."

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Curran at TSB sees the success or failure of open banking in the long term coming down to security and trust, two strengths the incumbent banks should lean on.

"People's data and their personal data is important to them," he said. "We're going to have to ride through a couple of years of people getting used to the idea that the data can be used for other things. Then also consent, people understanding that they give consent for things and how do we manage that consent?

"Those will be the building blocks, I think they will start to make this mass market, until we get those it's a nice idea and there are lots of nice activities, but I don't see anybody getting rich on it in the next 18 months."

Copyright © 2019 IDG Communications, Inc.