Open Banking Might Be The End Of Banks As We Know Them

Open Banking Might Be The End Of Banks As We Know Them

With a changing regulatory landscape, it will soon be possible for big tech firms to access bank client’s data. This change will herald a new shift from the traditional banking landscape.

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With a changing regulatory landscape, it will soon be possible for big tech firms to access bank client’s data. This change will herald a new shift from the traditional banking landscape. The big tech giants like Facebook, Google, Apple, Amazon, Microsoft as well as Alipay, Tencent and Baidu will get customer data from banks in 2018. Systems like Paym (UK) and Venmo (US) have proven this beyond doubt.

Riding on a strong regulatory foundation laid down by the UK and European regulators, non-bank third parties will access and make use of customer data without hindrance. The Second Payment Services Directive by the European Commission as well as the UK’s Open Data Initiative have laid down the laws needed to make ensure uninhibited bank data access by third parties. The new regulatory framework means major banks in the UK will have API’s that facilitate the new process. Tech firms will be able to access a customer’s account data directly as long as the customer authorizes it.

Firms like Amazon, Facebook and others will now have much more influence on how you make monetary transactions with and through them. This will all happen in a much faster and easier manner since these firms will have direct access to your digital banking infrastructure.

While this might not seem like a major concern, it is for the banks. Over the last few years, banks have consistently been losing revenue and access to their customer’s data to tech firms. The trend started in China where platforms like AliPay and WeChat gained a foothold in the payments sector. While the initial stages of tech firms’ interactions with bank data were all about facilitating payments, it has now become clear that the tech firms are taking away business and control from banks.

Payments data is critical to banks since they rely on it to add value to their services and to create new products as well. Customer data can also enable banks to control business risks. Without the data, it is virtually impossible to create suitable products for customers. A bank like ANZ in Australia has opted to make use of data to facilitate product prices for their customers. Considering that tech firms like Microsoft and LinkedIn can do the same thing and so much more compared to banks, it appears that banks are no longer irreplaceable anymore.

2018 seems more than ever to be the year when the financial services sector fully matures. It might not be completely clear right now how the landscape will be shaped up but it’s almost possible to predict the end result. When the big tech firms gain an insurmountable foothold in the financial services market by accessing customer bank data, banks will definitely feel the pinch. The profits and customer loyalty will definitely sway unfavorably for the banks.

This is why it will be imperative for retail banks to innovate and offer a more defined utility to their customers. They must show great resolve in shaking up the innovative space through new and improved products for customers. If that does not happen, banks will be outclassed to only act as ancillaries for the more innovative tech giants.

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