The U.K. and the EU may be providing U.S. financial institutions a glimpse into the future and how best to negotiate an increasingly customer-oriented landscape and individually directed personal banking experience. The coming deadline in January to open access to transactional data at each consumer’s behest removes the barriers to the “business preserve” FIs had enjoyed for so long. Further, the prospect of automating many of the aspects of banking and payments allows consumers to maximize savings in terms of rates, fees and optimize product and service engagement.
“The great thing about opening up data via APIs,” Blomfield says, “is that you can just automate away so many of life’s annoyances. You can use software to start optimising your life: auto-switching your gas or electricity or making sure you’re always on the best insurance policy.”
This kind of automation is how Open Banking Limited hopes to eliminate one of the great unfairnesses of the existing banking system: charges for exceeding your overdraft limit. Over half (51 per cent) of overdraft users find themselves paying a myriad of expensive daily, monthly and transaction fees, according to the CMA, usually when they are struggling financially. (To give one indication: if you go over your overdraft, you get charged £10 to £25 for every transaction, whether or not it actually goes through.) The Financial Conduct Authority said recently the system gave it “significant concerns”.
Open Banking makes it possible to create automatic systems that monitor your account and step in when you go into debt. If it can’t move money from another account, it will take out just the right amount of credit from the lender with the lowest rate of interest, without fees, and without even needing to ask for permission. “We expect that to become automated,” says Miles Cheetham, head of customer engagement at Open Banking Limited.
For banks, this is a problem. Overdraft fees – often from apparently free accounts: a classic case of, if you’re not paying for it, you are the product – provide around a third of bank revenues, according to the CMA. But the larger danger is that, like other incumbents before them, banks find themselves sidelined by digital platforms. “Look at what happened 10-15 years ago to Vodafone,” says Barnes. “They owned the network, the portal and the content. Then the App Store came in and that became where people went. The huge threat for banks is that they become plumbing for the financial sector, rather than having a direct relationship with the consumer.”
Mercator Advisory Group anticipates the transformation many financial institutions have underway, seeking to better engage and partner with their customer will serve to insulate them against the propensity to wider “utility-ization” of retail banking. While the U.S. has taken a more market drive approach to improve customer expectations of service rather than regulation, the effect is likely to be similar in outcome: wider customer choice in approach and engagement and ease of transferability to secure desired service levels. Giving consumers a sense of financial advocacy will be critical to build and retain trust.
Overview by Joseph Walent, Associate Director, Customer Interactions Advisory Service at Mercator Advisory Group
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