The UK’s largest banks are meeting the challenge to enable open banking in the UK by delivering against the foundational, regulatory requirements set by the Financial Conduct Authority (FCA) and the UK Government. The largest nine banks, as determined by the Competition and Markets Authority (CMA) — and referred to collectively as the CMA9 — have overcome significant procedural and technological challenges to offer new services to consumers and businesses, underpinned by a new capacity to make payments, share account data, and manage consents via trusted third-party providers and each bank’s own interfaces.
The resulting growth in the fintech sector has been rapid, with the UK taking the lead: An estimated 50% of UK small businesses and four million consumers are using services enabled by open banking technology, according to the CMA. In light of this growth, and with the implementation phase of open banking coming to an end this year, it is increasingly important for CMA9 banks to shift focus from compliance to the strategic benefits of open banking if they are to retain customers and keep pace with an increasingly sophisticated market.
The strategic gap
CMA9 banks well understand the strategic importance of open finance, both in terms of the opportunities it offers to improve services to existing customers and to increase market share by reaching new ones, as well as the potential costs of failing to match innovation by competitors in the marketplace. However, there has been little divergence among CMA9 banks on open banking strategy and, as a group, large banks are taking relatively modest steps to provide services or access beyond those required by regulation.
To date, the largest banks have made progress towards allowing consumers and businesses to access an aggregated view of their financials across multiple providers, and some are beginning to achieve loyalty rewards for customers as well as improved savings advice. However, only two are going further by, for example, delivering bespoke lending based on data analysis, and there is little progress against other areas of growth and service potential, from automation of payroll for businesses to enabling customers to save money on bills or maximise their cash or property assets.
Moreover, while large banks have shared a similar strategic approach to open banking thus far, execution of that strategy varies from bank to bank. This has resulted in significant differences in the quality of customer experiences offered: the number of clicks and time taken to access a given service online varies widely among CMA9 banks for the same task. This suggests the opportunity to build competitive capability simply by improving access to existing services and streamlining the customer experience, as well as by considering the best fit for each bank between their services, customer base and the opportunities of pushing further into open finance. Fintechs and new entrants to the market, such as Starling, Klarna and Revolut, are showing the way in this respect by placing a seamless, intuitive customer experience at the heart of their offer and operations.
Towards a new strategy
In our work on open banking, we find that clients can experience the sheer number of potential interventions to be overwhelming. This alone may have impeded their progress, not least given the often significant development costs associated with new products and technology, alongside managing the implications of legacy technology and the practical and reputational consequences attached to the need to protect data security.
Emphasising two principles is therefore key in establishing a strategy for open banking that goes beyond regulatory requirements:
- Prioritisation, based on an understanding of existing customer journeys with the bank in relation to its existing and potential product offering.
- Market insights, or detailed knowledge of what competitors are offering CMA9 banks’ customers, such as personal financial management products that consolidate multiple lines of credit into a single view, or automating the payment of parking and toll charges via an app on a customer’s mobile phone.
We developed a four-step “leapfrog” model that helps CMA9 banks grapple with both of these principles by taking a bespoke approach to reap the rewards and address the challenges of open banking. Based on our research, expertise and client engagements, we have grouped open banking interventions into four categories of increasing strategic and competitive benefit. These categories comprise a model that is helping large banks:
- Comply with regulatory requirements, such as by providing trusted parties with seamless access to account information and payment authorization
- Catch up with increasingly common services in the marketplace, such as simple international transfer of funds
- Keep up with competitors who are drawing ahead, such as by participating in third-party financial services platforms
- Leapfrog competitors, through the intelligent analysis of customer spending to enable flexible deployment of deposits, or to achieve savings through product recommendations
Our experience on both sides of the open banking equation has helped our clients achieve and act on these insights. Using the leapfrog model, we have helped a client prioritise and sequence its open banking initiatives to deliver optimal returns. Working with the client, we have reduced over 50 possible new product features and service enhancements to three customer pathways. These pathways deliver tangible results that address specific customer issues. The result is a clear, focused and actionable plan for the next 18 months that will secure our client a place towards the front of the market leaders.