/ Finance

Have No Fear, Open Banking Is Here!

Should traditional banks be afraid? Traditional banks have been established and trusted for hundreds of years. They have had time to perfect procedures, customer satisfaction, and security. Recently, Open Banking has become the topic of conversation in the banking industry. Although the Open Banking standard is not in full effect until 2019, should these pre-existing banks fear the new Open Banking concept? Do they need to adapt to it in order to prevent themselves from being left in the dust, or can they just let it go in one ear and out the other?

Open Banking is designed to increase the transparency and accessibility to customers. With a customer’s permission, accountants, auditors, and shareholders would have direct access to the financial data of the consumer in order to make their lives easier and their banking experience more individualized and beneficial.

Holdbacks

Traditional banks have held customer’s money safely and securely for hundreds of years. If they adapt to Open Banking, the possibility of the sneaky hackers in our digital world come into play. Banks are hesitant about sending financial information through APIs to third party providers because of the uncertainty of the security. Banks are known for not sharing information with their competitors which cannot be prevented with the openness needed in this new innovative banking concept.

Are Traditional Banks Going To Change Anyway?

As one can imagine, banks that have worked so hard to build this trust with customers struggle with creating changes to their procedures because they believe they finally found the perfect formula to success. One of the main concerns traditional banks have about this Open Banking concept is that consumers will begin choosing providers based on customer experience instead of product now. They worry that their long-time customers will move to a different provider because the Open Banking concept was adopted there and customers find it easier, more convenient, and successful.

It seems like it will be a priority for banks to conform to this Open Banking concept in order to keep their current clientele, and expand it in the future. However, according to a YouGov poll in the UK only 28% of adults, 39% of elders (55+), and 14% of middle aged people have even heard about Open Banking. So why do traditional banks need to conform if nobody has really heard about it yet?

Well once they do, this innovation will become the next big thing. It will be so big, that according to a recent survey by Bain, Salesforce and MaritzCX 63% of consumers are willing to leave their current banks and give their data to a competitor bank if they are offering something better through the Open Banking innovation.

Cha-Ching!

Challenger banks, start-up companies, and Open Banking are really setting high customer expectations. Unless traditional banks start to adhere to some of their benefits, they may get left in the dust once consumers are educated about Open Banking. Although right now there have been no drastic changes and consumers are not fleeing traditional banks for other experiences, this will most likely change once the public becomes more educated about it.

Traditional banks do not need to worry or fear Open Banking, but they do need to be aware of it, see the benefits of it, and understand the consequences of not adapting to it from a consumer’s perspective. After all, banks want customers to be happy and their wallets to say Cha-Ching!

References:

https://www.worldfinance.com/markets/open-banking-is-forcing-traditional-banks-to-evolve-or-be-left-behind

https://www.finextra.com/blogposting/16013/is-open-banking-forcing-fintech-banks-to-evolve-again

https://www.forbes.com/sites/baininsights/2018/03/15/why-big-uk-banks-are-worried-about-open-banking/#1adc3e904450

https://www.comparethecloud.net/articles/banks-lagging-open-banking/

By Tess Korinko