Tribe: Q&A on Open Banking
What aspects of Open Banking have worked?
One of the anticipated benefits of Open Banking was that it should open up opportunity and competition. In particular, offering key new tools for fintechs to boost their offering. When it works well, Open Banking can reduce costs, open up new customer segments and drive revenues, at a time when all three are critical to survival. Thanks to Open Banking, there’s better access to new products and services, greater customer personalisation is possible and new insights are available to help people and businesses manage their money better. At Tribe we conducted research which found that Open Banking is regarded by fintech leaders as the most important financial services initiatives today for these very reasons. Despite this, the adoption rate has not been as strong as predicted, with only around 2 million customers in the UK currently using Open Banking in one form or another (OBIE, 2020). This shows there’s still work to be done.
In your opinion, what are the reasons why Open Banking hasn’t yet been as successful as anticipated?
The operational complexity and high cost of developing Open Banking APIs has been a major barrier to entry for many service providers. Banks and fintechs have been slow to embrace Open Banking, particularly those who don’t have extensive resources. For Open Banking to work, we need to make it truly ‘open’ – and collaboration is the solution. There needs to be an infrastructure in place that will allow banks and fintechs to harness the power of Open Banking without having to invest in their own APIs. That way they can build and deliver services that add value to customers and drive further adoption of Open Banking.
Do you think Open Banking has changed financial services permanently or for the better?
Open Banking has the potential to change financial services permanently and for the better, but I do not think we’re there yet. A huge positive that Open Banking offers is the chance to improve the customer experience. The customer is put in better control of their finances and has more visibility and choice about how they manage their money. Now, more than ever, personalisation has been at the forefront of conversations, and Open Banking can add true lifetime value for businesses and their customers.
What further potential does Open Banking have?
Open Banking will allow fintechs to deliver real social impact too. One of the issues that fintechs were born to address is to serve the underserved. For example, the SME market only had a handful of providers to serve them ten years ago, and many did so without real conscious thought. Looking at the situation now, it has already become a key business battleground, with fintech firms looking to secure their share. But with an expanding market comes further complications. How do you credit score a business? How do you simplify onboarding to give a great customer experience? This is where Open Banking can come in to deliver a better product for traditionally underserved markets.
Looking to the future, how can fintech’s build a business case for Open Banking?
The beauty of Open Banking is its versatility, with a variety of business and consumer use cases that can benefit many companies and their customers. Focusing on these end benefits and working backwards from that should make building a business case pretty straightforward for fintechs.
For example, a money transfer business that is able to tap into APIs through Open Banking services will be able to reduce the complexity and cost of compliance. Or a trading company could provide payment initiation services (PIS) to power a better in-app customer experience and gain a more cost-effective route to move funds through their trading platform.
As a newer payments technology company, we realised that Tribe’s role as a nucleus within the ecosystem meant we could deliver an Open Banking solution to all our clients that enabled them to meet their compliance obligations with ease – and without significant investment. But perhaps more importantly, it can open a door for them to access the revenue opportunities that Open Banking can offer.
This is why Tribe partnered with Tink. Working with a leading Open Banking provider means we can deliver PIS and AIS solutions to all Tribe clients, whether they work with us for acquiring or issuing services. This ensures that Tribe clients retain their technical and competitive edge in providing relevant products to their end users.
Do you think Open Banking is on the way to becoming Open Finance?
Absolutely, Open Finance is a natural and necessary next step to take, building on the aspirations of PSD2 and Open Banking.
The COVID-19 pandemic has led to consumers adding more digital services into their daily lives and increasingly relying on these services to manage their finances. With so many providers to choose from, end users, including SMEs, new trusted third parties will be at the heart of the financial services experience. From mortgages and pensions to payment solutions, Open Finance encapsulates the idea of accessibility and removes barriers for banks, businesses and customers to interact more efficiently.
Unfortunately, Open Banking has also suffered because the focus for many businesses was on meeting compliance obligations, rather than looking beyond that to the opportunities. This created so many barriers. Open Finance should be embraced as an opportunity for a true customer-permissioned, multi-directional data exchange network, not avoided as a compliance exercise that only benefits some firms.
With Open Finance, financial services innovators will develop better, more competitive solutions with access to data that was once held in incumbent silos.This means consumers and small businesses will gain more control over their financial data and receive more powerful and affordable services in return. In summary, Open Finance has real potential to be a real win-win across the board.
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