Open Banking: infrastructure firms “invisible” as incumbents’ appetite varies

By Rebekah Tunstead and Michael McCaw

20 November 2018

"Critical" work conducted by infrastructure organisations – which provide aggregating services for Open Banking protocols – is being overlooked, says Iain McDougall, Stripe’s UK & Ireland country manager. It comes at a time when parts of the banking community have reacted differently to Europe’s Payments Service Directive 2 (PSD2), which came into force at the beginning of this year.

“[Infrastructure companies] are at times a little bit invisible, but they play an important role in terms of aggregating some of the work that Open Banking participants might otherwise have had to do themselves,” says McDougall.

According to Simon Healy, financial services industry director, EMEA, at Unisys, banks have reacted with varying levels of appetite to PSD2.

“There’s been a range of responses,” he says. “The big banks are likely to be slightly more begrudging around it because they’ve got potentially more to lose by opening up their data in particular. You’ve then got medium sized banks who are probably mostly focused at this stage on the compliance element and making sure at very least that they aren’t falling foul of regulation.”

“Bear in mind financial services are very risk averse and very risk driven so it makes sense that the incumbents are prioritising the compliance elements over the future opportunities,” says Healy.

For McDougall, those infrastructure companies - which are less known within the industry - are crucial to the workings and likely success of implementation of Open Banking.

“I think there are a bunch of companies who are critical to the Open Banking world, there are infrastructure companies that are less known like TrueLayer in the UK, there is an equivalent in Europe, Figo, and what these companies do, they act as Open Banking aggregators,” he says.

Last week, enabled by Open Banking, Tandem launched a new autosaving service in partnership with Stripe. Matt Ford, Tandem’s product & marketing director said the sole aim of Open Banking was not about bank aggregation.

“I think what you’ve seen with Open Banking is generation one of it, which is a lot of fintech or banks looking at the idea of Open Banking meaning bank aggregation. What I mean by that is the ability to see all your banks in one place,” said Ford.

“It’s not solving the biggest problems and biggest needs, it is a nice utility and a nice service that customers definitely want but if that’s the limits of open banking, then it has failed,” said Ford.

Banks’ appetite may change, says Healy, who suggests Open Banking propositions will accelerate over the next two years as market participants branch out by exploring new relationships and set up new entities.

“We’ll see a number of new, smaller organisations – either brand new or existing players doing things on the side – quickly building capabilities and moving from the current phase of ‘here’s a bit of information and you can see it all in one place, that’s interesting isn’t it’ into more proactive, analytics led, integrated propositions adding more value than basic dashboards,” he says.

“So we’ll see more propositions like that coming through from these standalone entities. But ultimately that’ll result in consolidation or more formal collaborations which is where we’ll start to see the real differentiators coming through.”

Unisys has conducted research into Open Banking, finding that while many consumers aren’t completely aware of the details of the concept, those that are suggested they were 3.6 times more likely to switch providers. That “illustrates that at least in the consumer’s mind there’s a real power here. There’s an opportunity here to leverage that,” says Healy.

According to McDougall, consumer awareness and education will determine the success or failure of Open Banking in the years ahead.

“One of the things that is pretty fundamental to Open Banking adoption is a willingness of consumers to grant consent to their bank to access their information and to provide that to other financial services institutions that might request it.”

“Whether education comes from the financial regulator, or consumer groups, or out of a more centralised government function, there is a role for multiple people to play here. But this education should not just come from the private sector, because it will be seen as self-serving to the interests of the private sector.”

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