- Open banking may not be the bank killer everyone expected it to be but customers can expect better and cheaper service.
- The fintechs still have a long way to go to dislodge traditional banks.
- But experts say banks will have to work harder to keep their customer base.
The banks are starting with a significant advantage over the fintech disruptors with the introduction of open banking in Australia, a move designed to transform the competitive landscape in financial services.
Bank customers will soon have more ownership of their own transaction histories under the new open banking regime which comes into force next year.
The banks will be required from July 1 to make available to customers their credit and debit card, deposit and transaction account, data.
It is this data — a history of a life through spending, payments and travel — which has the most value in terms of marketing and building new services.
Paula Gilardoni, Partner at law firm Gilbert + Tobin, says the federal government is hoping the banks will face greater levels of competition from fintechs taking advantage of the rich data from open banking.
“These disruptors are likely to offer innovative products and services, so the expectation is that banks will have to work harder to keep their customer base,” she says.
However, she says the banks are starting with a significant advantage so even if open banking is successful, the banks will still play a significant role in financial services.
“Many are already investing in tech businesses or joining forces with fintechs in an effort to manage the impact of the new laws,” she says.
The banks have a strategy of working with, rather than against, fintechs looking for a piece of the banking sector pie.
Shayne Elliott, CEO of the ANZ, can’t see the banks being replaced.
“The interesting development we’ve seen over the last 18 months or so is a shift to the view banks will work with fintech — rather than fintech replacing banks,” he told the SIBOS financial services conference this week.
“We don’t see an Uber of banking or an AirBnB of banking replacing us – rather we see innovative fintech working in partnership with innovative banks.”
Loss of market share?
However, Matthew Gardiner, a fintech adviser and founder at Catch London, says the disrupters can gain a hold in the market.
“If disruptors can both satisfy the ACCC’s accreditation standards and win consumer trust, they could gain market share,” he says.
“Especially if they are able to combine bank data with data from other sources, for example, shopping habits using algorithms and produce tailored financial services products for customers.
“Currently, there is no reciprocity principle in place for banks to access consumer data from tech companies, making it difficult for them to rival potential new offerings from disruptors.
“If consumers choose to move their data, market power could be defined by the quality of data held by banks and disruptors.”
The open banking process will power-charge change.
Adrian Melillo, Regional Director, Customer Success, at MuleSoft, a platform for connecting applications, data and devices, says costs will fall and services will improve for the consumer.
“For example, banks will be able to offer customers an individualised dashboard that showcases financial data from various banks aggregated in one place,” he says.
“And, with readily available customer data, banks will be able to suggest micro products and services at reduced costs to the customer.
“Fintechs will be able to rapidly approve loans in minutes by reviewing individuals’ financial records held by several banks, which Tic:Toc is already doing.”
Rapid digital transformation
However, this also means that banks will need to undergo digital transformation at a rapid rate to meet open banking standards and become more agile.
“To compete in this digital era, banks must unbundle their systems and data, and begin building an ecosystem around their core value,” says Melillo.
“They will need to unlock core systems, including legacy systems, as well as data — such as customer, transaction and behavioural information — and offer it up as services for internal and external developers to leverage through an API strategy.
“By creating an open ecosystem, banks will then be able to join other value chains to create new sources of revenue and offer customers more holistic experiences.”
But the banks will be up against fintechs moving fast, unburdened by old systems and ways of doing things.
“Market disruptors build fast, move quickly and set consumer expectations for the types of experiences they should be receiving,” says Melillo.
“Fintech startups have the advantage with their ability to be nimble and adjust to open banking requirements.
“Traditional banks, on the other hand, are often burdened with calcified processes, legacy systems, and monolithic infrastructure that slows them down and leaves them more vulnerable to disruption.
“To reap the benefits of open banking, these institutions must first overcome a major obstacle: unlocking their decades-old legacy systems, and instead connect applications, data and devices via APIs to form a coherent application network.”
HSBC has already unlocked its backend systems to develop a range of new services, such as a consumer app that can aggregate data from 21 rival banks.
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