Credit Management September 2019

OPINION
OPEN SEASON
Almost half of all financial services firms have
already adopted Open Banking but to what end?
AUTHOR – Will North
IN the 18 months since it was
introduced in the UK, Open
Banking has been a quietly
disruptive force. Whilst it has
flown somewhat under the radar
in the consumer world, it is in
fact, already transforming consumers’
lives, by putting the consumer firmly in
charge of their own data.
In financial services, the new technology
has enabled firms to harness the full power
of the data available to obtain a more
detailed understanding of their customers,
spanning income verification, risk and
affordability, and customer management.
As a result, lenders are able to make a
more informed assessment and ensure
responsible lending, while also delivering
an improved customer experience.
THE FOUNDATIONS
The UK’s Open Banking initiative was
created with the twin desires to give
consumers more control of their data, and
encourage competition and innovation
in finance, following a 2016 ruling from
the Competition and Markets Authority
that the UK’s nine dominant banks had to
share their customers’ data with accredited
organisations. The new initiative sat
alongside the introduction of the Europeanwide
Payment Services Directive 2 (PSD2),
a set of rules and directions passed by the
EU in 2015 which went live on the same day
as Open Banking.
The premise of both of these is to enable
consumers to give their banks and financial
service providers permission to share their
financial data with other accredited third
parties. The rules mean that this data,
once consent is given, can be accessed
via Application Programming Interface
(API), a standard access method across
all parties to aid flow of data and ease of
use. Key security standards will come into
force for the system on 14 September. This
date is going to be a challenge for some
organisations to meet, but is essential to
protect consumers uniformly.
IS IT SUCCEEDING?
The Evolution of Open Banking , a white
paper from TransUnion, based on research
conducted by Forrester Consulting, found
the adoption of Open Banking practices and
processes is widespread within banks and
financial institutions. Headline numbers
from the research reveal that at the end
of 2018, 46 percent of financial firms
were already adopting Open Banking or
expanding on their adoption. A further
36 percent noted they were planning to
adopt it within 2019.
Recent statistics would attest that
this is coming to fruition, with the Open
Banking Implementation Entity noting
at the end of April 2019 that the Open
Banking ecosystem already had 118
regulated organisations involved with
a further 200 companies on the waiting
list; with new use cases enabled and clear
benefits being delivered to consumers.
In a poll conducted by TransUnion
to evaluate consumers’ understanding
of Open Banking, we found limited
awareness, however, with one in four
saying they hadn’t heard of it, whilst
seven out of 10 said they wouldn’t want to
give credit providers access to their bank
account information because of concerns
over security.
So, while it’s clear that financial
organisations recognise the value of
Open Banking, there needs to be greater
consumer awareness to enable this new
technology to reach its full potential.
Banks and finance providers need to
address the concerns of consumers
around security and help them to
understand the value exchange that Open
Banking offers.
IN PRACTICE
The research found that initial projects
were primarily used for income
verification, credit risk assessment and
data insight i.e. functional tasks that help
lenders to vet and verify the consumers
they’re dealing with. As with any new
technology, this functional start is par
for the course, but as time and capability
in this area progress, we expect to see
genuine disruption occurring – seeing
these functional tasks give way to more
technical or complex matters such as
bespoke products, customer segmentation
and insurance applications.
The credit management industry has
a great deal to gain from the adoption of
Open Banking capabilities, and we can
illustrate this below with what we know of
The Recognised Standard / www.cicm.com / September 2019 / PAGE 54