Author Mark Richards

Next Saturday – January 13th – could be a pivotal day for the UK’s traditional banking industry. It is the day that sees the start of ‘Open Banking.’ But what is Open Banking? And what are its implications – for the banks, and for us?

There was an interesting conversation in our house over Christmas. My youngest son – now at university – needs to change his bank account to a student account. The only way to do it seems to be to go into a branch. He simply does not want to go into a bank branch. He feels intimidated. His elder brother empathised: “Yeah, right. No-one wants to go into a bank.”

Everyone, on the other hand, wants to shop with Amazon. The reception desk in our office building is still recovering from the onslaught of Christmas deliveries. And that prompts an interesting question: who knows most about me? My bank or Amazon?

I am no expert on data analysis but I would say it is a close-run thing. Who uses that data? Only one of the companies. Whose site do I visit several times a day? Ditto. Who pro-actively suggests things that are useful to me – and then delivers them in not much longer than I can take waiting to get through to a call centre in a far-off land?

Meanwhile, my youngest son – the target demographic the banks apparently want – has still not been into the branch…

Welcome to Open Banking

It is against this background that Open Banking will be introduced on Saturday, January 13th. What is Open Banking? It is an initiative – originally from the Competition and Markets Authority (CMA) – which means that customers can allow their banks to share their financial details with other banks and financially regulated companies, such as specialist loan and mortgage providers and investment companies.

‘What?’ I hear you cry. ‘Why would I want to do that? It’s bad enough the bank trying to sell me something every time I go in there.’

That is an understandable reaction – but the aim of Open Banking is to give the consumer access to better, cheaper products. If you give your bank permission to share your data then specialist suppliers of loans, credit cards and mortgages will be able to offer you specifically tailored products. Most people stay loyal to the bank they are with – the CMA found that just 3% of personal customers move their accounts each month – but Open Banking allows other companies to access your data, offering you better products that you might not normally be aware of without extensive research.

Sounds great. Are the banks ready for Open Banking?

This is slightly embarrassing – for some of the banks. The UK’s nine biggest current account providers were told by the CMA to be ready for Open Banking. Five of them have already said they will not be ready. Name and shame them? Of course, we will: Barclays, HSBC, RBS, Santander and Bank of Ireland. Teacher’s pets who will be ready are Allied Irish Bank, Danske, Lloyds Banking Group and Nationwide. The miscreants have been given a maximum of six extra weeks to get their homework finished.

It is not good, is it? Here is a measure designed to benefit customers and the banks are not ready for it. Are they being deliberately obstructive? Or are they just incompetent? I suspect that in the long run, it does not matter.

What does Open Banking mean for the banks?

What are the real implications of Open Banking?

Speaking in November 1942 Winston Churchill famously said, “This is not the beginning of the end, but it is, perhaps, the end of the beginning.” Is Open Banking the beginning of the end for our high street banks? Or did that come earlier, with the persistent mis-selling of products from endowment mortgages to payment protection insurance?

Speaking on BBC 5 Live’s Wake up to Money, Clydesdale & Yorkshire Banking Group Chief Executive David Duffy made a frank admission:

“It is not about one bank versus another or a big bank versus a small bank, it is about how you survive in a world where other people do banking better than the banks do.”

And that is the simple truth. Open Banking will open the door to a wave of specialist ‘fintech’ (financial technology) firms who simply ‘do banking better than the banks.’ Whether they are specialist providers of small loans, credit cards, mortgages or finance for the industry they will be quicker and sharper than the traditional banks. Using artificial intelligence they will make better decisions and delivering their services via mobile apps they will be far more in tune with what the vast majority of their customers want. If you would like an example, check out the website of current account provider Monzo. If you want a vision of the future, imagine what it will be like when the tech giants such as Amazon decide to enter the banking market.

How will the banks react to Open Banking?

On January 13th – or six weeks later – the banks have to comply with Open Banking. Gradually, customers will realise the potential benefits of the new regime and will make their data available. The fintech companies will cherry pick the customers they want and supply them with bespoke, personalised products. So what can the banks do? Let’s go back to Mr Duffy, of the Clydesdale and Yorkshire.

He has decided that ‘offering lifestyle options such as travel or health apps as well as financial support’ will be the key to retaining customers when Open Banking arrives. Really? The world is already full of travel apps and everyone has their favourite. Health apps? If you are serious about your health you are already on first name terms with Strava, Runkeeper or Map my Walk.

The high street banks are in serious trouble. On one side is a generation that no longer trusts them: on the other are millions of young people who do not even want to go into their branches.

If I walk from my office to Marks and Spencer I pass four high street bank branches, including one of Mr Duffy’s. Come back the other way and I pass the remaining three branches in our town. I suspect that ten years from now all those branches will be gone – and I find it hard to have any sympathy for the banks. The branch closures will not do much for the town centre – but at least I will not have to worry about my sons being mis-sold PPI…