Open Banking clears way for tech giants to move into financial services

Report suggests banks wary of tech heavyweights moving into retail banking within next five years

By David Beach | 10 January 2019

Two in three (66%) of UK banking decision makers believe the tech giants will be offering retail banking services by 2024, according to a recent survey.

The tech sector – led by Google, Amazon, Facebook and Apple (GAFA) – are well poised to embrace Open Banking, according to banking commentator Elizabeth Lumley, director of fintech and content at VC Innovations and FinTECHTalents.

“Tech giants understand what ‘open’ means; banks don't,” explained Lumley, in an email. “GAFA want the customers - they see the value and covet that customer data. Banks, by nature, do not operate in an open environment the way other sectors do. They have no frame of reference.”

Part of the research involved interviewing 50 professionals at c-suite and director level from retail banks including Barclays, TSB, Virgin Money and RBS.

82% said that UK retail banks aren’t innovating ‘fast enough’ for customer demand while nearly half (48%) feel that UK banks are three or four years behind fintech competitors.

On announcing the research, Michal Kissos Hertzog, CEO of Pepper, said the tech giants should be welcomed to the banking sector.

“Open Banking can create a real revolution that benefits traditional banks, not only the huge tech companies,” she said. “In my view, it won’t end in a ‘winner takes all’ scenario, like in other industries.

“The two main challenges for banks today are utilizing the huge amount of data they have gained for the benefit of customers; and collaborating with fintechs and third parties - which are made possible in light of Open Banking – in order to offer the best value proposition".

In terms of collaboration, 54% of traditional bank decision makers believe they ‘must collaborate’ with fintech players with only 24% believing that Open Banking lends these companies an advantage.

Despite this, the research also revealed a reluctance to adopt external technology (65%), a cultural mismatch (57%) and reluctances around legacy IT systems (53%).

If traditional banks are reluctant to adopt external technology, then the convergence of the need to innovate, GAFA pressure and Open Banking may lead to a rise in mergers and acquisitions, according to Lumley.

“I see a consolidation in the industry going forward. You will see an increase in M&A activity and more failed start-ups. We will also see a huge push into payments and personal financial services from GAFA. It is not that big a leap to imagine a world where we’re saying: “Alexa, what’s my credit card balance? Or “Alexa, re-mortgage my home,” said Lumley.

The Open Banking Initiative has started and stalled, with some industry professionals claiming that uptake has been “less than expected”, while others believe that regulators simply haven’t done enough to “pull banks to order”.

To add further complexity, banks are also faced with theoretical problems that have yet to be clarified - consent under GDPR being one, and liability another.

But for Lumley this does not spell the initiative’s failure.

“Not much has happened to the industry in terms of Open Banking,” she said. “But that doesn't mean it is a failure.

“Give it time - you wouldn't expect to go from chubby, couch potato to super fit overnight. It takes time and effort.”

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development