Open Banking Expo Magazine recently caught up with Jim Wadsworth, SVP Open Banking, at Mastercard on his thoughts around the Open Banking, the journey so far and his outlooks for success.
For Open Banking to flourish there still needs to be a fundamental shift in the market, but I am confident that it will happen. No-one quite knows when it will catch fire – whether it will be in six months or three years. However, I believe there are fundamental reasons why Open Banking will succeed if the financial sector across Europe and globally takes advantage of this significant opportunity:
1. This is not just regulation – it’s the potential for a global movement.
If we compare the launch of Open Banking in the retail banking world to other momentous launches over the past decades, I believe it’s safe to say that it’s a significant milestone in the history of financial management. It has the power to not only fundamentally change the way we manage our finances as consumers and businesses, but also to dramatically change the way people transact with one another on a global scale. The country first “off the blocks” – the UK – is the trailblazer, while much of the rest of the world is watching to see how it unfolds. Hot on the UK’s heels is the rest of Europe with September 2019 as a key milestone marking the wider roll-out of the PSD2 requirements.
It’s therefore an important time for both the UK and Europe who have the opportunity to demonstrate innovative capacity and creativity and set the pace for the global retail banking community with new services and products. Open Banking also brings with it responsibilities and an element of risk. Again, this presents an opportunity to identify barriers and issues and create bold and brave solutions. As a technology business that believes in thoughtful innovation, we at Mastercard recognise the major role we can play in facilitating trust and connectivity – as we do now between issuers and acquirers – by providing what we hope will become a global standard Application Programming Interface (API) set. Mastercard can curate new commercial relationships between counterparts, third parties and banks, even when they are geographically distant. Open Banking is disrupting the entire financial services sector and every player needs to reconsider their role and the part they will play in this growing movement.
2. The scope to create ground-breaking services and products has no limits.
What won’t work is the sector simply banging a drum saying: “isn’t open banking great?” and expecting people to start using the products. For Open Banking to succeed, I believe the concept of “Open Banking” must take a backseat. After all, it’s not the data or the underlying technology that’s important, it’s how it is implemented through smart and intelligent analytics – creative products and services that drive real value for real customers. These are the solutions that remove the pain, hassle and time wasting in our lives and reimagine how we transact. Importantly they must surprise and delight us. We’re already seeing them come to the market such as Coconut – a banking service that takes care of accounting and tax for self-employed, freelancers and small business owners, and Tully – which helps people clear debts by providing them with an overview of their financial situation alongside a personalised repayment plan.
Account aggregation services are a logical starting point and most banks are working on delivering these now. However, this is just the beginning. The pace of technological change is rampant, and consumers are constantly demanding more tech-driven solutions. The beauty of Open Banking is that it’s a wide-open playing field with no real first-movers with dominating market positions. It’s still all to play for; from fintech start-ups to household retail banking names.
We also can’t forget that a new generation of millennials and Generation Z across Europe are open to innovation – often purpose driven innovation – providing the sector with additional opportunities. With 97% of millennials wanting brands to be responsible when it comes to using technologyi, this adds more texture to the crafting of solutions that solve a real need while delivering additional societal benefits that millennials especially will respect.
3. Perceived value and trust will drive sign-up.
There has been speculation that sharing data – particularly financial data – might be a barrier for some in taking advantage of the services enabled by Open Banking. But if you present a consumer or a business with a product or service that delivers sufficient value to them, they won’t think twice. The millennial generation is generally comfortable with the concept of sharing data – it’s whether it’s shared for benefit. After all, people’s most intimate thoughts and experiences are shared across Facebook, Instagram and other social media platforms without quibble. As customers, we are happy to have our payment details shared with Amazon because shopping with one-click has been a game-changer and – above all – is convenient.
Consumers and small businesses assume that their banks will look after them, and if it goes wrong, they assume that they’re protected. Rather than product development focussing on conservativeness, the emphasis for new concepts must be on the genuine end-user value – and this is where the creative third parties will win.
4. Problems will be solved by established, trusted providers.
It’s not just consumers and businesses who need to be comfortable with the concept of their data being shared, but also the banking sector. There’s no getting away from the fact that opening up bank account data to third parties is a huge shift for the traditional banking sector. There’s also the issue that, when PSD2 takes full effect, there’s going to be a host of European third parties entering the market – reporting to several different regulators. With connectivity as the foundation of Open Banking, third parties and banks are going to need to find ways to interact successfully despite these concerns. Already there are new innovations being developed that will smooth this process and ensure the underlying infrastructure is fit for purpose whether avoiding, or dealing with, security issues. At Mastercard, we know the issue of quality infrastructure is a major consideration for the industry, which is one of the reasons we created ‘Open Banking Connect’. This is a single connection to multiple financial institutions’ Open Banking interfaces, enabling third parties to outsource that connectivity to a trusted partner which can afford to take the long view. And with our ‘Open Banking Protect’ offering, Mastercard is working with multiple banks to help in preventing fraud through building a wider view than is possible for any one bank.
Dealing with disputes is another area of concern and it is critical we do consider what happens if things do go wrong. Mastercard has been identifying some of the issues that could potentially arise based on its own experience and technical capacity from our card work. Working with a large number of industry participants, we have developed a rule set to help resolve problems that will inevitability arise. From an operational perspective, potential collaborations with credible organisations such as Mastercard will free up the in-house development teams within the banks and financial organisations to work on innovation and developing customer-centric solutions.
5. Regulators providing space for Innovators
Open Banking will succeed if the industry is now given time to develop – the innovators need to be given the opportunity to innovate within the new regulatory framework.
And as the momentum grows, we will see the full extent of the impact of Open Banking. We might see banks developing and changing their customer account product and service offerings, and we might see Open Banking extending into savings and investment accounts through further regulation. Other industry sectors will come onboard as they realise the value of the underlying data. For example, pharma companies using bank account data to check on age, and retailers understanding spending profiles and patterns, or for pre-population of delivery addresses.
This is why the opportunity is exciting, and why in the end, Open Banking will succeed. Yes, there are going to be different forms of collaborations happening between apparently unlikely partners, but that’s the beauty of a disrupted sector. I’m sure that Tim Berners-Lee didn’t imagine the potential impact of the world wide web when he first joined hypertext with the internet. Open Banking has the same potential to change how society and cultures operate, interact and transact. With other countries looking to jump on the bandwagon soon, I’m hopeful that it will be ingenuity and expertise that will continue to lead the movement that has already started in the UK and Europe.
