2020 has unfortunately had a lot going on. In many economies, the entire story of banking and payments was rewritten over the past eight months. It has been challenging for people, for business, and indeed for banks. If nothing else, what we have seen should only be putting an exclamation mark on the goal of Open Banking and the broader goals of Open Finance.
Open Banking hasn’t been without its challenges. There are many myths and misconceptions out there about what Open banking means, but it would be better for us to challenge those misunderstandings head-on. Attempts to rebrand Open banking to something like ‘Consumer Directed Finance’ is an egregious disservice to everything that we’ve accomplished already. It significantly limits the scope and changes the context, but it also resets to clock on the conversation. We need to remember that Open Banking is for all participants in banking – not just consumers. We need to remind ourselves that Open Banking is about the accessibility of services to those that do not have access.
For individuals, we need to focus on the message that we are giving people the rights to their data and the keys leverage that data only with service providers that they choose to a level of depth that they are comfortable with. People think that all of their financial information will be in an open box on their front porch that anyone can rifle through, and we need to be clear that this isn’t the case. Open Banking for individuals is about opening accessibility to broader financial services and financial inclusion.
Corporations need to be assured that they will gain control over their financial transparency with shareholders and customers as opposed to being exposed at every financial stress in their industry. Small and medium-sized enterprises need a level playing field to connect their financial systems to banks without the high costs of customized software and interfaces. Open Banking for corporations is about open integration and automation for faster payables and receivables without barriers to access.
Banks need to understand that just because they created the ledgers to hold all of our transactional account details, that the data does not actually belong to the bank – it belongs to their customers. Banks have been aggregating, anonymizing and selling this data for decades into larger data aggregators and marketing syndicates to generate billions in revenues. It doesn’t mean that it has to stop – but it does mean that their customers need to give their permission for their data to be utilized. Banks will need to find ways to incentivize their clients to contribute data to these types of activities going forward.
Overall, markets will need to adjust to new levels of competition and new methods of services being delivered, combined, and bundled in new marketplaces that will be potentially very disruptive to brands in the financial world. As we get used to our new level of data independence, adjust to the changes of digital currency, see the value of wallet-style solutions that can connect to a variety of digital marketplaces, we may well see the emergence of banking services being added and removed from a wallet or even simply a smartphone device in the same way that we add and remove apps from the apple or google store.
We are not far off from having the ability to hold provable/verifiable value in currency and non-currency assets without the need for the context of a bank. That doesn’t mean that banks and banking go away. I could add a savings account app from BOBsBank and assign some of my currency value to that app for the purposes of generating interest. I can add a stock trading app from TradeUP and assign some of my currency value to that app for day trading. I can add a loan app from MoneyLendrs and assign some of my non-currency asset value for the purposes of borrowing currency value. We would be able to evaluate each of these types of apps based on their rates, terms and conditions – plus user ratings. You would have the option to share as much or as little of your financial data as you are comfortable disclosing and understand upfront what level of disclosure each service provider requires. That is what truly open finance is building towards. Open banking is the stepping stone and the effects of everything in 2020 should make it clear that we need to keep our focus on achieving that step.
