As great as it may eventually prove to be for consumers, the implementation of the CMA’s open banking regime has hit the UK’s banks with a powerful one-two punch – an incredibly arduous and capital-intensive process of ensuring compliance with the new requirements, all to the end of creating more competition for current and potential customers. Brute force isn’t a sustainable approach to the problem, so how can banks box clever?
The final deadline for the nine UK banks mandated by the CMA to achieve compliance with the newly implemented open banking regime (Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, RBS Group, Santander) is fast approaching, and the banks are understandably nervous.
So far, the banks’ approach has amounted to little more than brute force. First, they ploughed extensive financial and technical resources into meeting March 2017’s deadline focused on open data, opening up information about ATMs, branches, personal and business current accounts, and credit cards. That was an arduous enough commitment. Now, they are further emptying their pockets to get shipshape for January’s even more significant deadline, aligning UK banks with the European Payment Services Directive 2 (PSD2) and allowing trusted third parties (TTPs) to be given consent by an account holder to access their bank account information and initiate payments without using the bank’s digital channels.
The open banking regime has been heralded as choice revolution that will empower consumers and create opportunities for banks to develop innovative digital products and services to match the customer experience provided by other industries. But for the banks, that opportunity will be merely a sideshow to the great expense and technical challenges involved in achieving and maintaining compliance through brute force. From finding ways to make previously internal data and services available externally in a safe and secure way, to overcoming the technical difficulties of working with ever-changing API specifications, to the impact of increased competition on marketing activity.
Banks have had enough. Let me paint a picture. Location: a bank boardroom. The CEO sits at the head of the table, clearly agitated. The COO, CFO, CTO, CPO and CMO enter …
CEO: “We need to get ourselves compliant. Right now. Just get it done.”
COO: “Well, the good news is, we’ll be compliant. Just in time, but we will be. The bad news? It’s cost us a fortune, eaten up a stack of resources and we’ll need to spend the same again just to keep everything up to scratch.”
CFO: “We’re going to have to make cuts somewhere to afford that.”
CTO: “We built all this from the ground up, now we’re in a technical dead-end and saddled with a massive SI bill. If we hadn’t been up against it with the deadline, we’d have done this all completely differently!”
CPO: “Seriously, we haven’t delivered a single new digital product all year because we spent all the money helping the competition get their hands on our customers?”
CMO: “So when do we go live with the open banking campaign? Oh … there won’t be one because we won’t have anything interesting to say. We’ve just had our heads buried in APIs that our rivals have used to build all the cool stuff. And they won’t even need to promote it. It’ll be so good, word of mouth will do it all.”
CEO: “Right. Last one out, turn off the lights. I’m off for a drink with the CEO of Monarch.”
Rolling with the punches
This scenario isn’t as hyperbolic as you might think. The bottom line is that banks are reeling from the powerful one-two punch of significant ongoing cost and increased competition that the CMA has thrown with the open banking regime. So, to continue with the boxing analogy, how can they roll with the punches, block, counter, and get back on the front foot by thinking beyond the burden of compliance, embracing the opportunity created by the freer flow of customer data, and turning the idealistic potential of new revenue-generation opportunities created by open banking into reality?
For many banks, however, their efforts to innovate through open banking will represent their first experience of putting genuine digital transformation at the heart of their business. Efforts at innovation so far have addressed change very much at the edge – tweaking digital banking apps, for example – as banks have done what they can to put off really difficult fundamental business change.
Open banking doesn’t offer an “easy out”; it will expose any sluggishness or lack of agility. Moving fast enough to be first to introduce new products and services is crucial. It comes down to distribution: leveraging new APIs to create additional revenue streams by pushing innovative, customer-focused products and services through new distribution points. The first bank to, for instance, sell savings products with a single click through a comparison site will win big. The second or third will probably do well enough, too – but you don’t want to be too late to the table.
Being a truly API-led business necessitates an entirely new technology support model, and there’s no telling yet what kind of volume of activity, or volume or type of issues, the banks will have to deal with from the TTPs plugging into their system. It’s no exaggeration to say that this is the biggest technology challenge facing banks since the turn of the millennium (when the Y2K bug really did constitute a significant threat, contrary to subsequent revisionism).
Being able to respond to the open banking opportunity and support new business models depends on enabling staff to embrace and implement new ways of working, eliminating wasted effort and overcoming outdated processes. A change platform built specifically for this purpose, where processes and policies can be automated to remain secure and compliant at greater speed and less cost, is a big part of solving this problem. Banks trying to build this on their own, or burying their heads in the sand as they continue to fiddle around on the edges of digital transformation, are following the ‘faster horses’ approach to innovation and delaying the achievement of genuine breakthroughs. Third-party platforms can provide the accelerant needed for them to create ‘cars’, the real innovations that drive new revenue and make the upfront cost of open banking worth it.
Photo by Romolo Tavani, Shutterstock.com