The financial services landscape is evolving rapidly and it is still unclear exactly what financial services will look like ten years from now. However, one of the key concepts that is certain to play a major role in the industry’s evolution is open banking.
In its submission to the 2017 Australian Government open banking inquiry, FinTech Australia, which represents more than 170 FinTech startups in the country, stated the importance of open banking:
”It is key to giving consumers greater access to and power over their data, empowering them with more choice, greater understanding of their financial standing, and more control over their financial futures. It is also vital to supporting greater fintech innovation – which creates increased competition, greater choice, more efficient delivery and lower priced financial services for consumers.”
So given these sweeping changes, let’s take a closer look at how open banking has come about, why it’s important, and what it means for financial services IT teams today.
Why open banking matters
In 2019, the Australian Government passed a new law that would give customers far greater access to and control of the data associated with the financial products and services they used. These collective changes came to be known as “open banking”.
The new laws required that the Big Four banks would need to make all customer deposits, transaction, credit card, and mortgage data available to customers if they requested it. It also means that data must be available to other companies also, so that banking competitors can use that information to undercut deals below what customers are already receiving. Smaller banks will also be required to meet these requirements at a later time.
What open banking means for customers
What open banking really means for customers is increased choice and portability. Having open access to your own financial data and being able to share it with third parties via APIs means there’s a much better likelihood of moving financial institutions for a better deal instead of just staying with your same old bank of the last ten years.
This customer inertia was essentially allowing the financial services industry to stagnate and charge customers excessively for the services they were providing. In this way, open banking will likely have an effect similar to that seen in the telecommunications industry when customers were given ownership of their phone number – so could freely move to another provider if they felt they weren’t getting a good deal.
What this all means for your IT team
For IT teams within the financial services sector, these changes will have some notable impacts. It will require changes to the way data is structured, stored, and transmitted. It also means that additional privacy measures need to be put in place around the way that consumer data is used. This will result in additional IT staff being required to handle these tasks as well as the creation of new roles dedicated to these actions, as the requirements are ongoing for the foreseeable future.
It also means there are new challenges that banking and IT staff face as they come to terms with the evolution of the financial services landscape. These changes are part of much wider changes in the financial services landscape as customer behaviours and expectations shift at the same time as regulatory changes are made.
These regulations have been put in place to increase competition and adjust to the emerging interests of new digital ecosystems offered by the big four companies (Google, Apple, Facebook, and Amazon) as well as a whole host of other smaller FinTech and DeFi (Decentralised Finance) platforms. It also means that startups, retailers, and new players in the tech market will be earnestly investigating ways they can access and gain competitive benefits from the valuable customer data that was previously siloed within the banks.
There’s little doubt that these are interesting times for the financial services industry, which is rapidly becoming far more fluid, innovative, and unpredictable. Open banking represents part of a massive shift already underway in the financial landscape, where companies unwilling to adapt will quickly find themselves operating with approaches that are no longer suited to today’s customer expectations.
For more information on how the financial services industry is being shaken up and how you can best adapt to take advantage of these changes, talk to the tech experts at Finite.