Open banking must offer ‘clear value’ for customers

John Kavanagh

The most promising use cases for open banking are income and expense verification, onboarding automation and account verification, according to a new survey.

Fintech Frollo and IT company NextGen surveyed industry 161 industry leaders to find out where the opportunities lie. Respondents included bankers, lenders, fintechs, brokers, IT providers and consultants.

Respondents said the best use cases needed to combine clear value for customers, to encourage them to use it, and growth or efficiency benefits for businesses that will justify investment.

Other use cases respondents said were promising included compliance, credit scoring, personal financial management, transaction reconciliation and personalised pricing.

Respondents said their goals for investing in open banking included improving the customer experience, product innovation, meeting changing demand, optimising processes and compliance.

The KPIs respondents said they would use to measure the success of open banking initiatives were customer satisfaction, new customer acquisition, customer retention and meeting compliance requirements and making savings.

The Consumer Data Right was launched on July 1, with open banking as its first iteration. Open banking is emerging in a number of steps: in July the big banks went live with product data and consumer data covering savings, transaction and credit card accounts; in October other authorised deposit-taking institutions started providing product data; and this month the big banks started providing consumer data on mortgages and personal loans.

Other key dates are 1 July 2021, when the big banks will be required to share all product and customer data with consumers and accredited data recipients, and February 2022, when all other ADIs will be required to do the same.

By that time the number of accredited data recipients should have increased from five currently.

Respondents said it would take three to five years for the system to gain momentum. Slow take-up is not being helped by uncertainty about the CDR’s “complex” rules.

Frollo chief executive Gareth Gumbley said: “Now is the time for the regulator to invest in a simpler and more flexible framework to speed up adoption and empower banks and fintechs to innovate and get on with it.”

Respondents said lack of consumer awareness was also a big challenge. The government has acknowledged this, allocating funds in the Budget for an education campaign.

Lenders said the opportunity for them lay in streamlining credit decisions by using CDR data to reduce friction in the application process. Developments such as more efficient credit scoring will help reduce costs and risk on the lending side.

Respondents had mixed feelings about the value of open banking, with only 49 per cent agreeing that it would help create trust in the financial system and just 50 per cent agreeing that it would make the industry more competitive.