Open Banking – A field of dreams?

“If you build it, he will come”

In the first of a series investigating the future of digitisation in financial services, TransUnion’s (formerly Callcredit) David Firth looks at how Open Banking is set to be a blockbusting shift for the market.

Under the regulations and guidance of the revised Payment Services Directive (PSD2) and the UK’s Open Banking initiative, in January 2018, consumers will be able to consent to third parties initiating payments and using account information through application processing interfaces (APIs), for whatever reason the consumer wants to give consent for…

Park the “Why would a consumer want to do that?” thought for a moment and let’s take a step back.

PSD2 – and the UK’s Open Banking interpretation of it – firstly acknowledges the increased popularity and availability of FinTech payment service providers and then seeks to provide competition in other markets by empowering consumers with an ability to manage (and inevitably monetise) their own data.

The natural reaction might be to think that the benefits for lenders or retailers of having a direct view of a customer’s current account and transactional information are much more obvious than the benefits for that consumer; they are more plentiful and they span customers’ entire lifecycles but the position around whose interests are best served isn’t clear cut.

So, here’s a thought from left field. “If you build it, he will come” is a famous (and usually misquoted) line repeated again and again in the 1989 fantasy drama ‘A Field of Dreams’, starring Kevin Costner. There is a direct parallel here with a lot of ongoing work and discussion around Open Banking opportunities – there’s some momentum behind a “build it and he will come” mentality, without broader and deeper thought around the likelihood or drivers for consumer consent, let alone the mutual benefits for third parties and consumers.

In the film, Costner plays an Iowa farmer facing financial ruin. After hearing an imaginary voice (“If you build it, he will come”) he decides to mow a baseball field out of his struggling cornfields in the belief that if he builds it, someone will come to play baseball and benefit his farm.

28-year old spoiler alert: mowing his failing crops to build a baseball field allows Costner to reconcile his issues with the ghost of his father and, as in all good movies, spectators arrive to help solve his financial worries.

As a solution provider and to service our clients and consumers, TransUnion (formerly Callcredit) is building a capability that manages the connectivity, consent, categorisation, insight and delivery of statement level information to support a wide range of new and existing hypothetical use cases, of which there are many.

Some are more evident than others. There’s a huge focus on account acquisition, where there are obvious use cases for thin credit files and previously non-consented bank accounts.

In Risk Management too there are huge scorecard benefits to the accept/decline process, particularly within referral and underwriting policies. Some of these are automated decisions, others manual and operational.

Then there are more obvious use cases in Affordability Assessment, built on the granularity of transactional data that complements well-established affordability data universes for income verification, debt profiling and creditworthiness and affordability assessments.

In Customer Management and Pre-Delinquency there are use cases for up-selling and cross-selling, limit removal, stress testing, early intervention and persistent debt management. For consumer protection, the benefits around avoiding unintended entry into arrears and the consequences of default should be clear.

And in Collections and Recoveries through to debt sale and purchase, there’s the potential for enhanced customer management and consumer journeys through more robust entry segmentations and through more accurate income and expenditure calculations.

Away from traditional financial services sectors, there are thousands of use cases – enhanced due diligence in Gaming; stronger Motor Finance assessment; removal of paper trails in mortgage applications; and establishing residency and identity & financial vulnerability in Government and Utilities sectors. At a variety of different levels there are even further opportunities in Marketing, money advice and consumer aggregation platforms.

Now, a failing crop or a home run might not be drivers for third parties to reconcile the opportunities of PSD2/Open Banking, but like Costner’s farmer, they will face challenges. Undoubtedly the biggest issue will be convincing consumers that there is benefit in providing consent, because consumers will see the benefits stacked against them.

Third parties, including TransUnion (formerly Callcredit), need to be careful to not let their judgement become clouded by their hunger for data and the notions of the upside from transactional data access. Products and services could easily disrupt and adversely impact consumer journeys without providing tangible consumer benefits; the most important consideration for us all is the need for consent and a convincing rationale around why a consumer would want to provide it.

Presenting a superior user experience and a stronger long-term consumer journey will be home runs, though, and if providers can do that consumers will be happy to play ball.

Unfortunately, without being able to clearly explain to consumers the tangible benefits of providing consent at different stages of their journey, irrespective of whether those benefits are real, operational or financial, third parties will ultimately find themselves to be a kind of lonely farmer, stood waiting to catch a ball thrown by an imaginary friend in an empty field of dreams.