When the Financial Conduct Authority called for input to its 2020 Open Finance consultation paper in December last year, mortgage lenders could be forgiven for thinking this ‘step up’ from Open Banking was a little premature.
While preparing for the future is laudable, mortgage sector players will readily concede they have yet to maximise the full potential of OB.
After launching in January 2018, this PSD2 initiative was predicted to ‘transform’ the way people move and use money. OB was the catalyst for change; it facilitated the exposing of data, products and services to third parties and competitors, producing new business models, products and ways for firms to engage with their customers.
These new rules for data sharing introduced a safe environment, enabling customers to consent to third-parties accessing their account information or make payments on their behalf.
Dashboards
Financial management dashboards for example, will enable customers to share more information about themselves, giving greater insights for decision-making. Lenders can also offer more holistic services with propositions giving customers access to everything they need to facilitate and complete a house move, and more, on differing platforms.
This could include: the mortgage offer, tailored insurance and savings products, surveying, conveyancing and removal services, plus discounts with white goods, furniture and DIY providers. Who so far has fully embraced the concept of reaching new customers/markets, importing other organisations into their businesses, increasing efficiency/flexibility and developing new revenue streams?
While the benefits are clear, the same cannot be said for sector confidence. At a recent PSD2/OB conference in Amsterdam, global banks and insurers voiced concerns over how to maximise the potential of OB, identify the support they need and manage APIs.
APIs
Key issues included how to increase exposure of their products and services and how to convince ‘entrenched businesses’ that APIs should feature higher up the strategic agenda (some fail to see the potential of APIs). Competition is equally an issue for smaller brands.
Without an API, no Open initiative will succeed. It’s the digital glue that connects different systems, enabling businesses to: better connect with partner clients and the whole ecosystem, reach new channels, monetize data and services, provide customers with digital and omnichannel experiences, develop platforms for partners, boost innovation and create viable products that reach the market quickly, enhancing the customer experience.
It moves a business from single/multi-channel customer communications (company, branch, web and app based) to multi-experience ecosystems (IoT, virtual reality, third-party online portals/marketplaces). It also ensures firms meet security, performance, governance and access-control guidelines, protecting customer data and their technology.
Before moving to this more ‘connected’ world, lenders must review their business models. Customer data can no longer be held in different systems, it will need to move to a single database and be shared internally and externally.
APIs are not only necessary to share data, they create a more agile IT process and team, so rather than view the additional expense of acquiring new software/services as a cost, it should be considered an investment; opening the door to new partners, customers and revenue streams.
API management software specialists, OB technology vendors (producers of more simplified versions) or in-house IT teams are capable of delivering the required APIs. However, less sophisticated software could lack the governance/ transformation elements, and those relying on in-house solutions could create potential update issues and security exposures.
OB model
In order to roll out the best model for Open Banking, lenders need to:
Understand the API value – data consumption and regulation compliance alone will not create a competitive advantage. Understanding where the API adds value and how it aligns with strategic goals will. Lenders with clear strategies will create stronger ecosystems that better utilise data, generating customer insight and new revenue streams.
Identify new partners – this initiative is not about competition, it’s about creating ecosystems with fintechs, other financial services providers and third-parties.
Recognise security – companies providing data via APIs will have to comply with security and access-management regulations, demonstrating a clear understanding about who’s consuming the data and where it’s flowing to. This equally applies to third-parties, particularly security around accessing and manipulating customer data.
As customers increasingly own their data, they’ll decide who the most innovative service providers are, making choices from within a wider financial ecosystem. Going forward, businesses will no longer be competitors; lenders will therefore need to leverage their relationships and work in partnership.
Those who collaborate and extend their services will ‘be ahead and not behind the technology curve’. With the FCA’s support, the pace of digital change is set to increase so it’s vital lenders gear themselves up to meet the changing needs of their industry and consumers.
Those who do will meet the OB goal to prompt innovation, increase competitiveness and help consumers/businesses better understand and utilise their finances.
