Open Banking turns one on 13 January.
Before looking forward, let us look back very briefly to the launch of Open Banking on 13 January 2018.
There was a lot of hype surrounding the launch.
Many observers, who ought to know better, claimed that Open Banking would be transformational very quickly.
It was, we were told, a game changer.
Open Banking would disrupt the incumbents. It would help to accelerate switching rates.
There would be innovation on a scale not previously witnessed.
The end result would be considerable benefits to consumers, who would gladly share their personal data with third parties.
Never a day seemed to go by when some breathless PR from an unheard of start-up or obscure consultancy was on the phone. And usually making ludicrous forecasts about imminent seismic change on a scale not previously witnessed.
Open banking turns one – big ambitions
Many evangelists went even further and claimed that Open Banking represented a new revenue generating opportunity for the incumbents.
UK success would result in markets outside Europe keen to accelerate their plans for similar initiatives.
We heard similar arguments and ridiculously optimistic forecasts around the time that the UK rolled out seven day switching.
As previously noted in RBI, switching rates remain stuck at around 2% per year.
Overblown claims by some that seven day switching would result in 6% or even 10% switching rates were always nonsense.
And that is borne out by the figures.
Open Banking supporters’ ambitions were undoubtedly ambitious.
Nor is it objectionable to promote innovation, encourage customer choice or empower customers. The fact that it is an opt in system and the safeguarding of data is at the heart of the system is to be applauded.
It is also unarguable that for certain transactions, such as international payments and travel, the likes of Transferwise and Revolut are helping to lower costs for a growing number of customers.
Open banking turns one – Nationwide Open Banking for Good
There are also examples of how Open Banking may boost financial inclusion.
Nationwide’s Open Banking for Good initiative, focussing on boosting products that encourage financial inclusion is deservedly attractive favourable comment..
But the claims that disruptors help to boost competition and lower costs do not apply across the entire sector.
Take Viola Black as just one such example. A new player on the scene has kicked off the New Year with a mega ad campaign across London’s public transport system.
If ever there was a case of a new product offering more hype than substance, this is it. And if it persists with its expensive fees structure, it is hard to see it gaining significant customer numbers.
Far from viewing Open Banking as a new revenue opportunity, many incumbents give the impression it is more of a regulatory compliance requirement.
Off the record comments from senior bankers suggest that many have only developed a limited strategy to date.
Privately, many admit that they are not satisfied with their progress to date.
A degree of rational, calm realistic reflection is more appropriate at this stage, rather than the hype of the evangelists. Or to be fair, the negativity of many eager to write off Open Banking prematurely.
Data breach embarrassments such as the Cambridge Analytica scandal do little to encourage the public to share data. Data sharing is, after all, core to the potential success of Open Banking.
Nor do I accept the argument that the Strong Customer Authentication initiative has the potential to make the consumer experience, worse. And in turn kill off Open Banking’s prospects.
Yolt one of many early successes
It was always going to be a slow process and talk of quick, seismic and transformational changes was always unrealistic.
Equally unrealistic are those forecasting that 2019 will be the year that the initiative really takes off.
The established banks are still working out where to develop in house or work with external consultancies and tech providers.
But on a positive note, account aggregation services are now readily available and for free on the app stores.
To give one example, Yolt, the first TTP to connect to all CMA9 banks using Open Banking APIs surpassed half a million registered users last year.
There are now 100 regulated providers with 17 Third Party Providers using Open Banking in the UK. Open Banking technology was used 17.5 million times in November last year, up from 6.5 million in September.
There was never going to be a killer app in the first year
In brief: give it time – but for Lord’s sake – cut down on the hype.