Open Banking: New standard brings change and opportunity for innovation

Open Banking arrived on British shores with much fanfare and expectation. Britain's nine largest banks will now be required to ensure customer account data is accessible to appropriately regulated organisations including their competitors. The initiative will provide a fundamental challenge to the closed market system and open up competition within the financial services sector. One can expect to see competitive banking products that could potentially disrupt the existing balance of market share. But will Open Banking be a catalyst for innovation? Signs point to yes.

Open Banking will change the game by enabling smaller fintech companies and challenger banks to compete with traditional financial services incumbents. This is expected to be a chief catalyst in boosting activity within the fintech start-up community, who will benefit from the ability to draw from financial infrastructures and existing bank databases that had previously been proprietary. The net effect will be a proliferation of innovative solutions for existing bank customers, with a greater level of financial products designed to fit the requirements of the new, digital landscape.

As laid out by the UK Competition and Markets Authority, Open Banking will be built on a foundation of secure technologies and standard Application Programme Interfaces (APIs) that will enable bank customers to authorise third parties to access their data. This has the potential to shake up long-standing bank advantages both in Europe and further afield. It also provides consumers with more control, dismantling the traditional barriers between consumers and their data, allowing them increased control of their finances and supplying them with simpler mechanisms to transfer between alternative providers. Indeed, progressive and forward-thinking banks have already begun capitalising on this new environment, partnering up with fintech players and merging the functionality of traditional banking applications with personal finance management and aggregation capabilities.

Corporates also stand to recognise tremendous benefit from Open Banking, most of whom who are yet to catch on to all the various positive advantages. Corporates, especially those who enjoy multiple bank relationships, should look forward to more convenient payment management across different banks via a centralised platform, enabling more effective cash management. Financial decision makers must be better informed to comprehensively understand the benefits of Open Banking and know the right questions to ask their banks and internal stakeholders in order to capture the benefits of Open Banking.

There is tremendous potential for the UK's Open Banking standards to be adopted beyond UK borders, facilitating a more user-friendly environment of interoperability. International banks have of course pre-empted this, voluntarily endorsing this new era of open APIs amid expectations that these regulations will take form across geographies.

We can expect that Open Banking will make it easier to use Faster Payments in the UK, on a multi-bank basis. The New Payment Architecture currently being designed for the UK, following hot on the heels of Open Banking, will make Faster Payments even more valuable. New initiatives such as Request to Pay will see the potential introduction of sophisticated electronic invoicing into the payment system, making it easier to pay and get paid for goods and services, with more flexible payment options in terms of timings and partial payments.

Similarly, another new improvement known as Enhanced Data will provide more detail within the payment on what the payment relates to, making it easier for businesses to reconcile inbound payments. In today's real-time payments world, it is important that corporates employ compliance and fraud systems that not only monitor and alert anomalous transactions, but also check up on user behaviour to identify and prevent potential fraudulent activity.

The Open Banking initiative will require the financial industry to rethink user experience since traditional banks will be unable to rely on the ownership of customer data. In this transformed, digital landscape, design will fast become a critical tool for producing effective financial services, the ability to access accounts, financial data and payments using any third-party financial service ultimately giving users unprecedented financial freedom.

Open Banking represents the disaggregation of banking services, which will ultimately become more interchangeable. Banks will be encouraged to embrace these new data streams and create applications that are desirable for consumers, which is sure to benefit from the host of new providers coming to the fore.