How do you measure Open Banking?

And how do you know if he succeeds or fails?

There is currently an interesting debate about Open Banking in the UK. It was triggered by Anne Boden, CEO of Starling Bank, who tformer parliamentary committee that Open Banking had not encouraged people to switch accounts. A group of fintech CEOs then wrote to the committee saying their remarks were “uncompetitive and typical of banks trying to thwart the future of innovation in financial services.”

(I use Open Banking, in upper case, to mean an open bank that is enforced through regulations as opposed to a lowercase open bank which is a generic term.)

So what’s the problem ? Okay, first let’s be clear: Anne is right. The data shows she’s right. We can easily establish that. The United Kingdom has implemented an automated system for changing bank accounts. It’s called the current account switching service, or CASS, and it predates the bank’s opening by several years. The latest figures available for the year up to June 2021 show that only 647,000 people switched accounts (around half the number of people who switched accounts in 2014).

Open Banking has therefore not increased the number of account changes. But I’m not sure that means anything about the future of Open Banking or fintech innovation, because switching accounts is, and always has been, a bad move for the Open Banking ecosystem. .

The advantage of open banking is that consumers can access the services they need without having to change their checking account. Banks can provide anyone with the plumbing needed to create an ecosystem by offering ‘banks as a service’. The regulatory framework for financial services is so expensive that many super apps I just don’t want to navigate there anyway, especially in several jurisdictions.

So the increased competition for services that “orbit” the checking account (as Mike Kelly, an expert in open banking) nicely puts it, is not visible in the switching statistics.

Change is not always good

As more and more banks provide open banking APIs, there is less need to switch accounts. From November 2021 The UK Open Banking ecosystem comprised over 330 regulated companies comprised of over 230 third-party service providers and over 90 payment account service providers who together account for over 95% of the current account market.

Open banking means that customers can access the portfolio of services they need without having to switch accounts, especially since all accounts are basically the same. Many UK companies are keeping this promise. To look at Account Technologies (warning: my son used to work there!) Profitable and with over a million users, this is exactly the kind of business the new environment allows, and no one needs to switch accounts to use their services.

Coconut is another good example of a business in this ecosystem, but in the SME market. Coconut was launched as a checking account for the self-employed and the self-employed to help them track their expenses and, more specifically, their taxes. He used open banking to get a complete picture of customer finances and aimed to optimize the use of financial services and minimize tax obligations. A great idea and a great team – they were one of the winners of the Opening challenge in 2018 (disclaimer: I was one of the contest judges) – and exactly the kind of activity an open banking ecosystem can enable.

Coconut has now pivoted to provide the app without the checking account: since they can connect to over 25 current account and credit card providers to automatically complete transactions, what’s the point of providing those accounts themselves, especially given the regulatory burden that goes with being (in eurospeak) an account service payment service provider, or ASPSP? Sam O’Connor, CEO and Co-Founder of Coconut, identifies that there is no need to combine the current account and the financial tool, and this ability to allow clients to bundle services is at the heart of the matter.

Grouping

I’m a small business and now that Quickbooks can use open banking to access my accounts, life has improved even though my checking accounts are the same. I use the Wise multi-currency account, I use Revolut, I use Coinbase etc etc. The old consolidation of financial services doesn’t matter: the days when I opened a savings (or other) account at my main bank just because I already had a checking account at that bank have since vanished. long time.

We are now in the era of integrated finance, where open banking means customers have access to the financial services they need for what they do. This means a radical change in the financial sector with ramifications in all sectors. Lightyear Capital believes that integrated finance can unlock $ 230 billion in new net income by 2025. As they put it, the change will benefit companies with a “digital mindset” who can claim the opportunities in other areas of fintech innovation. They give an obvious example, that access to accounts will open up banks’ data stores to support better lending, as risk assessment will be guided by richer data in the markets and poor business owners. serviced, but this is just the beginning.

The success of Open Banking should not be measured by the change of account but by the growth of the ecosystem. Here, the data shows significant growth at every point in the value network. The number of API calls was around 60 million in 2018, around six billion in 2020 and I’m sure the numbers for 2021 will show further substantial increases. Last year 2.5 million people used services that relied on open banking interfaces, this year it will be over four million, next year it could be double. Zopa’s Tim Waterman recently said that we could reach 40 million users by 2025 if the industry offers more innovative services. I agree: the ecosystem is ripe for expansion around identity and reputation management, data management, etc. Still, I’m pretty sure that when I’m one of the 40 million users of these new services, I’ll still have the same checking account I have now!

So in summary, Open Banking did not increase the account change, but that doesn’t mean Open Banking fails because the account change is an irrelevant measure of the success or failure of Open Banking.


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