Open Banking: Creating competition in the UK banking industry

By offering online banking, mobile apps and live chat, traditional banks have evolved to embrace new technology. But now, with the arrival of Open Banking, a revolution is coming – and it looks like it could shake up the whole industry. Challenger banks, price comparison sites, telecoms businesses, retailers… there’s no end to the list of new entrants who could benefit.

The advent of Open Banking exposes the industry to greater competition than ever. Traditional banks are now forced to open up their significant and highly valuable data assets. Until now, this data has been protected, and not used to its full potential. The big banks have lacked the capabilities – and sometimes the will – to use this data productively.

Open Banking paves the way for radical changes, giving new market entrants the chance to compete for the banks’ most profitable product lines. They have the opportunity to pitch themselves as ‘life management’ services rather than traditional banks, but their challenger status and questions about data security may make it difficult to achieve the same level of trust.

The Open Banking revolution that’s happening right now could significantly disrupt the competitive landscape of banking in the UK. At the same time, lenders are facing challenges in terms of changing consumer behaviours and expectations. These changes fall in line with the principles of Open Banking, a situation that creates massive opportunities for those who can align those consumer expectations with tangible product offerings.

Consumers in general, particularly the millennial generation, are highly digitally-enabled. They expect seamless online experiences and instant service from their banking provider. Additionally, they are far more aware of the power of their personal data, and could be more willing to share it with third parties if they see value in that transaction for them.

For lenders, then, this potentially means identifying new data sources to validate and assess large populations of people. The information held must be accurate and up-to-date, and capable of outlining a 360-degree view of the customer. In a world where customers expect better service and demand better outcomes, only this visibility ensures that the right lending decisions can be made.

Just as important is the need to ensure that customers feel in control of their own data, whilst complying with FCA regulation. Data enablement – enabling customers to use their data to make better purchase decisions – is a powerful marketing tool facilitated by the onset of Open Banking. Switching costs are reduced, and swapping one product or service for another becomes much easier. Most importantly for a sector where quality of service has long been an issue, consumers can be made more easily aware that better alternatives to their existing products sets are available from new providers – not just a different name offering the same poor level of service.

Based on explicit consent, the opportunities presented by Open Banking require consumer trust to work effectively. Third-party services must create enough of a compelling reason for the consumer to consent, and must ask for consent at the right point in the consumer journey. To this end, Callcredit is working with clients to optimise the consumer journey, mapping this out into data delivery mechanisms and how the integration and technical design will work. We can help to identify new models that streamline the consumer journey, reduce costs and offer significantly improved risk positions.

For more information, download our Open Banking report to find out how Open Banking might just be a lifeline for banks.