Open Banking will lead to fundamental shift in operating models

Regulation comes into force in January, forces banks to open their API to approved third parties 

Google, Amazon, Facebook or Apple could enter banking

Open Banking is an existential threat to traditional banks, according to the Future of Finance, a new piece of research released today at Personal Information Economy (PIE), the UK’s leading personal information event.

Pie Report ThumbnailThe qualitative research, conducted by Ctrl-Shift, the specialist business consultancy, and Callcredit, the UK’s fastest growing and second largest consumer data agency, interviewed leading figures from traditional banks, challenger banks and the wider industry.

Open Banking will expose banks to new competition, by forcing traditional banks to open their API (Application programming interface) to third parties. This will give competitors access to banks’ enormous data collections.
According to the research, banks have underused this data, due to their complex systems and older technology. However new, more digital competitors will use the data to target the most profitable parts of a bank. In a worst-case scenario, this will leave banks saddled only with unprofitable products, like current accounts. 

The research concludes that Open Banking is an opportunity for banks to enhance their services, but warns that those who do not act now could need a government bailout in the next five to seven years.

Mike Gordon, CEO, Callcredit Information Group, said: “Open Banking is an important development for the industry, it will bring greater competition and new ideas to banking. This means that traditional banks are likely to create exciting products to retain and grow their customer base.

“Yes, it could pose a risk to banks’ operating models, but I believe that they will use Open Banking to innovate and grow.”

Liz Brandt, CEO, Ctrl-Shift, said: “Banks have a real challenge on their hands. Open Banking is an imminent threat, which banks will struggle to respond to due to their large, cumbersome structures. To survive, banks will need to think and act fast.

“I believe that we will see some clever solutions, such as the creation of ‘lifeboat’ banks. This is an approach Midland took years ago when it set up First Direct.”

Tech titans to enter banking
In addition, Open Banking is likely to see at least one major technology company – namely Google, Amazon, Facebook or Apple – enter the banking market. The research argues that these companies will look to either acquire an exciting challenger bank, such as Monzo or Starling, or provide payment solution services.

In addition, Future of Finance suggests that Chinese companies will look to enter British retail banking. It argues that Alibaba, Tencent and Baidu will all look to enter the market due to Open Banking, with these companies already providing payment services in China.

For further information download your copy of the ‘Open Banking report’ today.