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The Public Sector should be much more excited about Open Banking

25 October 2017

Callcredit’s Business Consultant, Richard Morton, explores why Open Banking will be of more importance to the public sector than people realise.

With the onset of Open Banking and the Second Payment Services Directive (PSD2) fast approaching, most attention has been focused on how increasing the citizen’s control over their banking data will disrupt financial services.

New products will be created and old ways of working will need to adapt or risk being overtaken. The relationship between the individual, their data and financial services will evolve as citizens explore the myriad of possibilities thrown up by being able to call on their transactional banking data and initiate payments on demand.

Outside of financial services and fintech, though, awareness of Open Banking has been at a slower rate; maybe slowest of all in the public sector where new innovations can take longer to penetrate. At Callcredit we’re having some thought-provoking conversations with the sector, but overall there appears to be a lack of awareness, never mind excitement, about these changes.

Yet Open Banking represents a huge opportunity for the public sector. It will enhance the sector’s ability to provide best-fit services, combat fraud and error, find efficiency savings and improve the customer experience of the millions of people who deal daily with organisations like local authorities.

The big challenge for the sector will be to get the compelling reason to consent right because the value-exchange which citizens will demand in return for their data is not as obvious as in other sectors. At Callcredit, we’ve been thinking a lot about this recently.

Let’s start with the widely recognised truth that, unlike other sectors, the public sector does not choose its ‘customers’. Broadly speaking, an individual is either eligible for a public sector benefit, service or product (such as a local authority parking permit) or they’re not. In the context of Open Banking this matters because citizens are most likely to be persuaded to share their personal data in return for a value-exchange, such as acceptance for a loan.

If it makes no difference to eligibility how personal information is provided (for identity verification, for example) so it follows that the sector needs to work a bit harder to understand what the value-exchange could be. The good news is we think use cases show that compelling reasons to share data exist and can be harnessed to drive improved services and more efficient ways of working.

As with banks and lenders, many of the interactions citizens have with the public sector - tax, benefits or registering for services like recycling centres, for instance - require evidence of who you are and where you live. Yet public sector identity verification processes are often onerous, vulnerable to error and insecure. Sometimes they are based on regulations or guidance which is years or decades old. Often these processes still involve paper statements being posted or emailed back and forth.

Open Banking data will, when the Personally Identifiable Information (PII) data is available, make identity and residency verification smoother, more secure and more accurate across all sectors. This is especially true where Open Banking can be blended with the breadth of traditional credit reference agency (CRA) data. It’s true the individual citizen may not find the idea of public sector efficiency a compelling reason to share their data, but I’ve rarely met anyone who wouldn’t want a smoother, quicker, more satisfying conclusion to their interactions. If the public sector gets reduced processing times, improved efficiency and enhanced accuracy in combating fraud and error as a consequence, then everybody wins.

In one sense Open Banking could be even more useful for identity verification in the public sector than in other areas. Public sector caseloads disproportionately contain citizens from lower-income groups who are more likely to have thin credit files. Open Banking data adds a layer of verification to improve the pass rate in the segment of the population that is most reliant on public sector services. (Though we must be cautious here as this group may also be less likely to have an account covered by Open Banking.)

Another area of Open Banking where there will be benefits for everyone is bank account assurance and payment initiation. Citizens (or SME businesses) pay, or receive payment, from the government, local authorities and the NHS in a whole host of ways, from taxes and business rates to leisure cards to pensions.

Verifying that the nominated bank account belongs to the right citizen and initiating payment in smooth, intuitive and transparent steps can provide increased assurance and security to both parties. Again, a value-exchange for the citizen, a process efficiency for the organisation and a means of combating fraud and error in the public sector.

So far so good. Easier, more accurate and more secure verification will be an Open Banking win for both citizens and public sector organisations alike. But Open Banking will make a very rich source of granular, categorised banking data available at the push of a button. The most exciting opportunities may be in empowering citizens to use this transactional data in their interactions with the public sector in the same way they will use it to buy financial products.

Citizens share detailed financial information with the public sector (and third sector) for a number of reasons. These often involve handing over paper statements and manual scrutiny of evidence on income, savings and other personal financial information. It’s time-consuming and inconvenient and the processes are vulnerable to human error.

Open Banking APIs allied with sophisticated categorisation and analytics provide the technology potential for the citizen to share this information at the push of a button. The benefits of this go beyond simply making the customer journey more frictionless and improving public sector processes. More complete and accurate information will actually deliver a better service to the citizen.

In a recent report, for example, The Debt Counsellors Charitable Trust identified a number of shortcomings in local authority debt collection practice, including the lack of a consistent and informed approach to affordability. This leads to unrealistic and unsustainable repayment plans. Open Banking will give the citizen the ability to share granular, categorised data on their income and expenditure, which will produce sustainable recovery plans and mitigate the risk of driving them further into the debt spiral. The citizen doesn’t just get an easier journey in exchange for sharing their data - they get a better service and, we hope, a better outcome.

Most people agree that Open Banking will have a transformative effect on financial services. We think it can have a similar impact in the public sector, enabling smoother customer journeys, more accurate and secure verification and even better-fit services designed around the individual citizen. That’s something we should all get excited about.

To find out more about Open Banking, about Callcredit’s work in the Open Banking space or to be involved in developing solutions with us, please contact Callcredit using our online form  or call us on 0113 388 4300