Like many new entrants to the industry, we think the banking landscape will change fundamentally in the future. The market will become increasingly diverse and modularised, with new companies specialising to offer very specific components of banking services or products. The potential for this future scenario is underlined by our recent research, which among others showed that as many as 39% of bank customers would share their financial data with other banks and third parties (such as Amazon, Apple, Tesco and so on) if in return they received benefits such as an overall view of their accounts in a single app, or being able to compare tailored product offers from third parties.
The advent of Open Banking is particularly influential in this sense. Supported by a new regulatory regime, this initiative means that banks will be required to share more customer information than ever before via technologies such as APIs, application programming interface. Making infrastructure available through standardised interfaces will be a major trigger for new competition, from many different sources.
Already, a large number of FinTech start-ups are working hard to establish themselves as platform providers for services such as payments, investment, and lending. These ‘digital value chain players’ are focused on providing excellent experience and functionality at lower cost, for specific traditional banking services. Whilst many bank CEOs we spoke with believed the threat of FinTechs was “a lot of froth and hype”, other CEOs thought they presented an opportunity to enhance their offering through partnerships.
That said, banks take the threat of larger tech organisations such as Google, Amazon, Apple and Facebook very seriously. Many CEOs believe it will be these players which drive the real change and disruption in the banking industry, by inserting themselves between the customer and the underlying bank they could take value from the bank and relegating them to the role of invisible ‘dumb pipes’.
The Second Payment Services Directive (PSD2), is an example of legislation that is accelerating this shift towards Open Banking and subsequent use of APIs, enabling banks, FinTechs and companies from other industries to transform the payments industry. Many of the CEOs we spoke to as part of our research viewed PSD2 as a significant opportunity to implement new digital strategies, as they will now have access to other banks’ customer data and can become an Account Information Service Provider (AISP). In this scenario, banks could consolidate or aggregate data from a variety of banks and create new propositions, such as a dashboard presenting all customer account information in one place.
So what will the impact of Open Banking be on new banking competitors, the so-called ‘challenger banks’, and incumbents? As discussed in our recent report, the key drivers of success will likely vary by segment, but all must respond to the open banking regime.
How each segment responds will shape the future of the market, for example: