A massively disruptive technology change is coming to retail banking in the UK and if the big four retail banks don’t react then they could be marginalised. The UK’s Competition and Markets Authority published a set of proposals on the 9th August to improve consumer choice and competition in the retail banking market. Among them was the proposal to implement the Open Banking Standard by early 2018.
The core proposals of the Open Banking Standard are to provide a set of open APIs that will allow authorised applications access to your banking details and potentially make transactions using accounts from other banks.
The initial implementations are likely to be limited to “read only” applications such as personal budgeting assistants (e.g. mint.com), and apps to compare products based upon your financial history (e.g. an improved www.moneysupermarket.com). These will drive increased competition in the retail banking sector, but are not likely to be truly revolutionary.
However, the proposal which did catch my eye is the ability for third party applications to make payments for you. The example given in the report from the CMA is moving money from a savings account to a current account so that you can avoid using an overdraft. In this use case the API could be limited to moving money between your accounts at a single bank. However, this could easily be extended so that you can move money between your accounts at any bank, and then further expanded to move money to any account.
If this sort of open API is implemented it could lead to massive disruption. And it would all be due to the open API.
Let me explain why, by drawing a comparison with email. Every email provider in the world uses the open standards of SMTP to send email, and a combination of POP and IMAP (or the de-facto standard ActiveSync) to read email. This has allowed email users to separate their account (i.e. server) from the client that they use to read email. What does this mean in practice? Let’s look at how I manage my own email.
I access four accounts regularly: work email, personal email, a shared inbox with my wife, and an official account for a voluntary organisation. These are spread over three different email providers. But, on my personal phone I access all of these using a single email app.
If I wanted to change my email client I can easily move between Gmail, Apple’s Mail app, Microsoft’s Outlook app, or any number of new startups in the field.
Similarly, if I want to add a new email account, or change the server I only need to add a new account in my email client app.
Now think back to banking. If we have open APIs for transaction history, and to send money why would you need to use your banks app anymore? Instead you would manage your account from a third party app which is likely to have more features, and innovate faster. It could also manage multiple accounts from a single screen. It would take the pain out of switching accounts, and would also allow you to manage many saving accounts to get the best rate of interest.
A few simple open APIs could break down decades of barriers that have built up that have limited the amount of competition in retail banking.
Now the current proposals may not happen, may get watered down, or may get delayed. But I think the genie may be out of the bottle, and in the long term you’ll have open APIs to control your finances.
What does this mean for retail banks?
Customers won’t be locked in to your services, and retail banks will need to compete more than ever with each other, but also with third parties who specialise in agile services for consumers that can innovate in days, not months.
This power of these proposals for an open API in banking reinforces my belief that open APIs and standards are also the way forward for the networking industry. That’s why we’re focussing upon solutions at Juniper Networks.
The cloud is central to the delivery of every digital service of the future, and the foundation for the cloud is the data centre. As we've seen there is great power from an open ecosystem, and that' why the Juniper data centre solution is all built upon being open.
If you want to find out more about our the Juniper approach to the open data centre then join us at our Open Disruptive Decade summits across Europe between September and December.