RBI editor Douglas Blakey speaks with industry experts to gain informed forecasts on 2020 open banking
2020 open banking: AI to be transformative
Aman Cheema, Head of International Strategy, FIS
We entered 2019 with great expectations. This was the year when a series of new initiatives and innovations would truly transform banking.
We leave the year feeling the same way. Only with the revised expectation that 2020 will be the year these initiatives have a real impact.
Regulation and technological innovation are in the process of transforming the way people are banking.
The most important of these are open banking, revised PSD2 and the creation of the UK New Payments Architecture (NPA). These pivotal initiatives will support the introduction of new payment processes and instruments known as Overlay Services.
Using networked accounts, open banking helps lenders get a more accurate picture of a consumer’s financial situation and risk level. It could help consumers get a more accurate picture of their finances before taking on debt. And it can automatically calculate what customers can afford based on all the information in their accounts.
Other services will help small businesses save time through online accounting. And help fraud detection companies better monitor customer accounts and identify problems sooner.
Critics of open data cite data breaches due to poor security, hacking, or insider threats. As the industry innovates, so does organised crime, making it more difficult to track and trace illicit funds. This can, in the long term, impact consumer trust negatively. In other words, it is an unacceptable risk for businesses.
AI to detect, prevent fraud gaining traction
Because of this the use of AI through machine learning to detect and prevent fraud is gaining traction. The rate of AI deployment as a fraud management measure remains relatively low. This ensures the security of the payments that people and businesses make every day is a top priority for 2020.
The convergence of open banking and AI is set to also transform the user experience. Data will stream in from a multitude of sources, allowing service providers to build accurate customer personas. Financial institutions will soon be able to forecast their patterns and behaviour and build customised products more efficiently.
As a consequence, consumers will enjoy faster onboarding, more personalised services and seamless authentication.
2020 open banking: we have only scratched the surface
Steve Andrews, Head of Managed Services, Focus Solutions
In the last year we’ve seen the number of open banking providers rise from 8 to 19. This brings new functionality to market as consumers start to access and benefit from these services. But we have just scratched the surface. In 2020 I expect this trend to pick up pace as retail banking technology is increasingly influenced by the demands of open banking. This provides a great opportunity to service clients smartly and more efficiently.
Customers are free to share their financial information with whichever company they choose regardless of with whom they bank. And so this gives financial institutions a golden opportunity to access a wealth of data. And at the same time get a better picture of their customers’ entire financial situation.
If you look at the lending space the ability to access customer financial data, transaction history and spending habits in real time allows for very efficient and precise processes to be adopted.
Optimising the customer experience
In addition, other onboarding activities such as KYC and AML offer significant cost savings for lenders. All with a greater customer experience as a result.
While face-to-face advice remains an important part of a retail bank offering, increasingly sophisticated financial software allows elements of self-service, giving traditionally less profitable customers greater access to advice. Skipton Financial Advisers launched its new systems in September. Skipton followed this approach by including new adviser tools that allow services like triage. And so this enables the filtering of clients to the most appropriate advice model and investment proposition at an early stage.
There is an increasing amount of use cases where open banking data can be fed directly into client facing advice tools. Examples include savings and investment calculators, pension and cash flow modellers. This creates a far more personalised approach across every financial service a retail bank offers.
This type of smart automation creates slicker, faster and more personalised services. And so it helps people better manage their finances, while helping banks increase their customer base and maximise customer satisfaction. I expect to see more banks utilising technology to gain an early mover advantage in 2020.
2020 open banking: exponential increase in usage on the horizon
Mike Woods, co-founder, Konsentus
Early estimates, following PSD2 Open Banking enactment (access to accounts), suggests only 30% of ASPSPs have implemented dedicated interfaces. So there is undoubtedly a long way to go before the whole of the industry complies with the regulation.
However, we are starting to see a shift in the market suggesting this may not last long. At Konsentus, our Third-Party Provider (TPP) Tracker, highlights that those who believe there are only currently a few regulated TPPs active within the market are mis-guided. As the tracker shows, every EEA country whether regulated locally or not, has TPPs approved to operate in those countries.
It is true to say today that the number of Open Banking transactions is low. Most ASPSPs have implemented manual processes for TPP identity verification and authorisation checking. However, this manual checking is unsustainable as volumes of Open Banking transactions increase.
January 2018 saw the implementation of UK Open Banking. Nine of the largest banks in the UK were enforced under the “Competitions & Markets Authority (CMA) Order” to implement Open Banking APIs.
Over 110 regulated TPPs in the UK
From zero regulated TPPs in January 2018, there are now over 110 regulated TPPs within the UK. They are authorised to provide services, with an additional 41 having the right to passport-in their services.
In January 2018, there were zero Open Banking API calls. As at October 2019, there were 138.5 million transactions in the month. This number is predicted to exponentially increase as more and more people utilise Open Banking services.
Therefore, the UK should be viewed as a barometer for what we expect to follow in Open Banking across Europe. Whereas today there are little/low transaction volumes within Europe, these numbers are going to significantly increase in 2020 onwards. More TPPs are going to seek authorisation driving a greater Open Banking transaction volume.
What does this mean for ASPSPs? Firstly, they will each need to ensure compliance with the regulation by providing a PSD2 Open Banking dedicated interface.
Manual processes to become unsustainable
Secondly, they will each need to automate their Open Banking processes as transaction volumes significantly increase. Manual processes may currently be sufficient to meet the demands of the market. However, this will become unsustainable when the increase in Open Banking transaction volumes anticipated next year become a reality.
Third Party Provider Identity & Regulatory authorisation checking are fundamental pillars to the security of Open Banking. ASPSPs need to ensure that only regulated TPPs, with the customers’ explicit consent, are given access to consumers’ accounts. And that data is shared in a controlled and proportionate manner. ASPSPs have the legal obligation to ensure the protection and safety of their Payment Service Users (PSUs).That is their data and funds, as well as ensuring protection of their brand and market standing.
2020 open banking: only at the start of the journey
The concept of Open Banking, the framework, processes and procedures are merely the start of a bigger journey. Already within the UK, no doubt followed by the wider European market, the concept of Open Finance is being discussed and debated. Open Finance will expand the Open Banking ecosystem to include other regulated financial services currently not part of the ecosystem.
It is only a matter of time before PSUs have the right to provide account access. And share information with a variety of regulated service providers including banks, pensions, insurance, investment and wealth management amongst others.
We are just at the start of the “Open” journey. The financial services industry landscape will never look the same again.
The big 4 pillars to boost the payment and financial services evolution
Cristina Astore, North Western Europe Region Sales Director, SIA
2019 was expected to be focused on the advent of PSD2 and Open Banking. However it has not yet shown its full potential in practical terms.
Blockchain instead began to attract more and more attention. The deployment of relevant initiatives based on permissioned Distributed Ledger Technology (DLT) went beyond the proof of concept.
For example there is the ‘Spunta project’. Commissioned by the Association of Italian Banks (ABI), this greatly improves the resolution of inter-banking reconciliation issues, a highly manual and time-consuming process.
The initiative will be fully operational across the whole Italian banking community in the second half of 2020. It increases automation and reduces the time to redress reconciliation issues from three days to less than three hours.
Greater efficiency, fewer errors
Another example is a project started by the Municipality of the City of Bari in the south of Italy. This digitises in total security the administrative processes related to sureties. And achieves greater efficiency, eliminates manual error and prevents fraud, by using DLT and smart contracts.
Both initiatives involve SIA showing the enormous potential of the Blockchain to provide solutions. In particular in the context of communities sharing common business processes based on decentralised applications.
Mobility is another area where the introduction of innovation has brought a significant improvement in the user experience. Italy is driving this evolution. Following Milan in 2018, Rome deployed contactless ticketing over the underground and local railway network.
Travellers are able to use their normal contactless credit or debit card at the turnstile. This removes the need to buy paper tickets. The system also automatically charges the best fare based on the number of journeys made.
A similar move happened at the Venice public transport authority. It adopted Android SmartPOS terminals on every vaporetto boat to digitise the purchase of tickets by residents and tourists alike.
2020: Big Data comes to the fore
Payment digitisation generates a significant volume of data that can be exploited to improve existing services. And it develops new ones answering customers’ needs. For example, transportation authorities can get crucial information about travel itinerary patterns from contactless ticketing. This is unobtainable with paper tickets and better serves travellers by adapting transit lines to customers’ usage. I expect to see in 2020 a strong development of Big Data systems based on payment in other sectors and not only in transport.
The Internet-of-Things will also contribute to streamlining some automatic payment processes. I foresee a rise in the number of such devices. This will be driven by advances in technology and the expansion of 5G mobile networks. Furthermore, we are working to better integrate them within payments infrastructure, in association with AI to develop increasingly sophisticated use-cases.
We will see a further acceleration towards consolidation in payment and financial services. One example is the roadmap to the Eurosystem Single Market Infrastructure Gateway. This is promoted by the European Central Bank, and another is reflected by our progress in the Business Process Outsourcing of large card portfolios.
Finally, I expect to see a strong growth of e-commerce. This will be supported by the roll-out of new solutions for mobile payments based on Open Banking access-to-account solutions introduced by PSD2.
2020 open banking: tipping point in sight
Marcus Hughes, Director of Business Development, Bottomline Technologies
Though borders are becoming more opaque, the payments sector is working hard to ensure that both businesses and consumers have the tools to navigate the landscape with efficiency, transparency and security.
Open Banking will play a significant part as will the advance of new technology and processes providing cross-border payments. Overall, I expect we’ll see a continued level of healthy disruption across the industry.
It’s safe to anticipate that Open Banking will have a larger impact on the business payments space than in the consumer space. And soon we will reach a tipping point where the benefits of Open Banking to businesses will become too large to ignore.
Mid-corporates to benefit
Under the new model, mid-corporates will gain easy access to the benefits of multi-bank payments and cash management. Historically this has only been available to large and multi-national corporates.
Alongside business buy-in, collaboration and co-operation between providers will create hybrid solutions. This will combine APIs (Application Programming Interfaces) and more traditional connectivity such as SWIFT and EBICS. And it will make the long transition to an API economy easier.
Once this shift takes place, business and consumers will begin to see the effects. This will include vastly reduced pay per transaction costs and, potentially, bypass card payments altogether.
Request to Pay: flexibility and increased consumer choice
We are also likely to see the payments landscape being affected by the introduction of new payment instruments such as Request to Pay. This effectively combines an electronic invoice with flexible payment options, and will complement Direct Debits.
The process will make it easier and less expensive for utilities and big businesses to get paid by their customers. At the same time it provides flexibility and increased options to consumers.
We also anticipate the continued interplay between regulation, technology and industry confidence. Shifts such as Brexit and increased scrutiny over sanctioned payments will play a key role. Over the next few years, cross-border real-time payments will become a reality. Domestic real-time payments systems will become more integrated with each other. Meantime there is a progressive modernisation of the underlying technology that powers payments between banks and market infrastructures. With Brexit, UK small and medium sized businesses will find one-stop, multi-country payment and collection services to support their exciting new import and export markets beyond the European Union.
Payment security will remain paramount to boosting business and consumer confidence in making the shift towards openness and transparency. Above implementing transaction and behaviour monitoring tools, we are likely to see a growing number of large corporates taking steps to protect themselves from reputational risk by taking responsibility for sanction screening their payments before submitting instructions to their banks.
ISO20022 adoption to accelerate
On the regulatory front, the growing international adoption of a standard ISO20022 payment file format and SWIFT gpi for the tracking of cross-border payments will offer the global payments industry greater protection against financial crime.
Innovation in the payments landscape is dynamically moving towards a paradigm where businesses and consumers are provided with greater options for transparency, collaboration and convenience.
Confidence through stringent security measures and proven wins for early adopters is sure to drive the transition even further.