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July 4, 2018updated 02 Jul 2018 11:52am

Open Banking: slow start, big future?

By Douglas Blakey

It has been a slow start – and awareness of Open Banking remains low among retail consumers, with only 18% familiar with its meaning – but the market has the potential to create a revenue opportunity of at least £7.2bn by 2022, according to PwC. Douglas Blakey reports

Open banking can benefit almost 33 million consumers and 4.8 million businesses by 2022 if banks, fintechs, credit scoring agencies and technology giants tap into its potential.

Consumers are most likely to benefit in areas such as mortgage approvals, credit scoring, financial management and reduced overdraft fees according to new PwC research.

The PwC report, The Future of Banking is Open, also highlights the potential for other industries to develop AI prototypes, while SMEs can benefit from streamlined finance operations, payroll management and affordability assessments.

The headline-grabbing soundbite from the report is the revenue potential. PwC forecasts the market could be catering for 8.1 million consumers and 2.4 million small businesses, and be worth £2.3bn ($3.03bn) by the end of 2018. By 2022, the Open Banking sector could quadruple its worth to generate £7.2bn of revenues. Incremental revenue is expected to be £1.3bn, with the remaining £5.9bn representing revenue at risk for incumbents.

Retail money management represents the largest Open Banking opportunity with £2.4bn in revenue by 2022; retail overdraft decoupling is also anticipated to become a significant opportunity with £2.1bn in revenue by the same year. New entrants are expected to threaten existing bank overdraft revenues by leveraging transactional data to automatically identify opportunities to offer customers lower-cost alternatives.

Alternatives to existing price-comparison platforms are anticipated to be the fastest-growing opportunity, with a CAGR of 42% over 2018-2022.

The report’s optimistic tone contrasts with the wider industry’s perception that Open Banking has got off to a slow start.

Following its January launch, awareness of Open Banking has remained relatively low among retail customers, and after an initial surge in public searches, interest in Open Banking has trailed off in recent months.

Open Banking is not a focus of banks’ marketing efforts. Given the continuing uncertainty around elements of the regulation, banks have concerns about promoting data sharing and where liability lies.

Only 24 Account Information Service Providers and five Payment Initiation Service Providers had been approved with the FCA as at the beginning of May 2018.

Key demographics

PwC’s survey analysed the key demographics likely to drive Open Banking uptake. There is a widespread distribution of “addressable” – the ones most likely to want and use Open Banking products – retail customers across the UK, especially in the Midlands, London and the North of England.

The survey of retail consumers found that the most addressable type of consumer for whom industry players will be developing services are younger, on lower incomes and are comfortable using technology, and are likely to use Open Banking to identify ways to reduce personal expenditure through:

  • Aggregation of financial product information;
  • Analytics of expenditure and direct debits, and
  • Personalised financial product comparisons

The consumers most likely to share data tend to be young, urban-dwelling, high earners who are comfortable using technology and multibanking; they may be more likely to change between financial providers and may use Open Banking for money management and personalised financial product advice.

However, the report also reflects consumer scepticism around Open Banking: many would rather share medical information rather than details of bank transactions or balances.

As Open Banking products and the underlying technologies mature, PwC expects the “unknown quantity” element to taper off, just as it did with the advance of contactless payments – a technology that is now widespread and broadly seen as secure.

So, how will theory actually turn into practice for Open Banking? There are three distinct waves: in the present first wave, with only current account data available via APIs, propositions predominantly focus on improving solutions to known issues. Many of these are already available via screen-scraping.

The second wave will focus on creating new financial services propositions that address gaps in products and services – where solutions are not currently available.

In the third wave, open data structures are likely to become more widespread in other industries, and this will accelerate if Open Banking proves successful. This will provide the opportunity for the development of propositions that not only improve financial services, but also feed through into a broader range of life management services by using AI – for example, a digital assistant that automatically manages tasks such as food delivery, tax payments or utility bills.

Jonathan Turner, financial services payments leader at PwC, said: “We are seeing companies starting to treat Open Banking regulation as a critical topic that cannot be ignored due to the size of the opportunity, but also because of the potential influx of competitors and the potential overhaul it could deal the financial services landscape.

“By providing access to this data to third parties, Open Banking goes some way to levelling the playing field between the traditional financial services providers and new disruptors. Incumbents are at risk of falling behind more technology enabled peers as well as the new market entrants such as fintechs.

“However, incumbent payment providers are already reacting by boosting innovation, emphasising the valuable features and building on the trust that they have established and invested in over many years.”




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