It’s been a year since Open Banking launched and was supposed to take the banking world by storm. However, the movement has been fairly quiet since its much advertised introduction and banks have not been impressed. Are Open Banking problems ever going to go away? Patrick Brusnahan writes
Open Banking and PSD2 were hyped up to be a revolution for banks. Some have argued that it has arrived not with a bang but a whimper.
With the new system, banks had to open their payments infrastructure and customer data assets to third parties. The goal was to make the incumbents more customer-focused, but it hasn’t had its desired effect. In fact, everyone except banks seems to have gained an advantage.
Open Banking problems
According to a report from Pepper, the digital sub-brand of Israel-based Bank Leumi, banks are not happy.
Within the report Change In Banking, 58% of decision-maker at banks stated that Open Banking had a negative impact on their organisations. However, 56% of banks still believe it represents an opportunity.
The consensus is that Open Banking favours fintechs and GAFAs rather than the incumbents. 64% of UK retail banks, such as Barclays, TSB, Virgin Money, and RBS believe that is has given GAFAs the advantage. Also, 24% of respondents believe that it has given fintechs the distinct advantage.
Furthermore, two-thirds of decision makers think that tech giants will offer full banking services within the next five years. Consumers do not in general think that GAFAs will overtake banks, a mere 29% believe they will.
When asked why retail banks are slipping behind innovative fintechs, 65% claimed it was because there is a reluctance to adopt external technology. On the other hand, 54% said that collaboration with fintechs is essential to innovate faster. An additional benefit of collaboration, at least according to 48% of decision-makers, is to cut through the red tape that Open Banking brings with it.
Speaking to RBI, Michal Kissos Hertzog, CEO of Pepper, says: “Despite the concern, Open Banking won’t cultivate a ‘winner takes all’ scenario. Regulations like PSD2 and initiatives such as Open Banking are set to change the face of banking. Banks with agile and lean systems that allow them to update their offering and continue to meet consumers’ demand for more valuable, convenient and easy banking experiences will thrive. Banks that fail to seize the opportunity may well disappear.”
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