A Conversation On Open Banking

Leigh Garner (LG):

Hello everyone. My name's Leigh Garner from Discover. I lead our industry relations team, which leads our engagement with industry bodies globally. Today we're here to talk about open banking. So, whether you are a bank, a technology company, or a payments company or any combination of those, then the push for open banking has the potential to change how business works. Simply put, open banking is based on the idea that a customer's financial data belongs to that customer. So therefore, I can decide as the customer whether or not I want to share my data with any third party for them to use that data or in some cases even for them to initiate a payment on my behalf. Much of the impetus around the new environment has undoubtedly come from the un-bundling of financial products driven and brought around by the fintech industry.

There's also a regulatory view, so there's regulatory developments that have taken place in Europe, and many markets now around the world are following that lead. But there are also some markets which are very much more market driven, and we'll get to talk about those later. So, the implications of open banking is a global thing, and even beyond open banking, we are now talking about open finance and open data environment and how that could empower all sorts of platforms to provide new services to consumers. So today, I'm here to talk to Chris Skinner. I can think of no one better to talk to around the global developments around open banking. For those of you who don't know Chris, then he's one of the most influential people in technology today, well known for his independent analysis and views on the fintech industry.

He's the CEO of The Finanser, a research and media firm focused on fintech and the future of finance. He's also the chair of Nordic Future Innovation, a non-executive director of the fintech consultative 11:FS, and on the advisory board of many fintechs. In his spare time, apparently, he's written 16 books, with his latest, Doing Digital, telling the impact of fintech, mobile, blockchain and other technologies on some of the largest banks in the world. So welcome, Chris.

Chris Skinner (CS):

Yeah. Hi, Leigh. Thanks for inviting me along.

LG:

So, Chris, I gave a brief introduction to what open banking was, but perhaps you could give us your definition of what open banking is.

CS:

Yeah, I mean it is originated in the 2000s when cloud computing and the smartphone came along. That's actually what sparked the fintech revolution of the 2010s. In that suddenly people could use cloud to launch an API, an application program interface, plug-and-play software, that could be used by anyone, anywhere, anytime, cheaply and easily and scale massively without having to have the infrastructure to have been purchased upfront for that scale because it's in the cloud. And that was picked up on by the European regulators when they started developing Payment Services Directive, PSD2. They said there has to be open APIs for payments in Europe, allowing trusted third parties to get access to customers’ bank data when they needed to make payments if they've been given permission. The UK expanded that into a wider definition, which was open banking and saying all bank data can be shared by customers if they give permission through APIs.

Now we've moved into open finance being something being looked at across the world and different regions moving at different speeds. But in particular, I think it's all about how can we create simple code that anybody can use to do specific bank and financial processes that makes the customer experience better. That was the driver to have more competition and more people allowing the customer to get better informed through their own data. It hasn't really taken off very quickly because a lot of customers are very wary of having their bank data shared with third parties. Equally, the banks are very wary of sharing with third parties if the third parties don't share with them. The current regulations typically say the bank has to share the data, but they don't get the third party's data back that they can leverage and use. So, it's early days. It's not actually something that's finished. It's a developing project.

LG:

No, as we know from many other developments in the payments industry, and the example that I like to give is contactless. Sometimes these take….while the solutions are there, actually consumer adoption takes a little longer than anticipated.

CS:

I mean, consumers are very wary of having their banks data available to even their partner or family because it's private. So, if something is that private and secret, it's very difficult to see how people will share it. I think some of the younger generations, the Gen Zs and Millennials feel differently about that. But over time we'll see open banking take off in a way that says if we can have this system that brings many, many innovators together to create the best customer experience ever, then I think the customer will be happy to have that.

LG:

Yeah. Maybe do you think... I mean there's been some talk here in the UK of open banking being a failure, but it's probably a bit premature to say that. But do you think even maybe from a consumer point of view, the term open banking isn't actually the best term to use?

CS:

Absolutely. It's not the right term for that service for the consumer. It's the industry term looking from the inside out, a bit like embedded finance or omnichannel, that's the inside-out view. From the consumer's view, it's actually quite scary if you talk about open banking because they think that means their data will be leaked to people that shouldn't have their data. The one thing everyone is always nervous about is their money because it's a psychological pact with an institution that has to be trusted. If you suddenly say, "We're going to leak your data through open banking to people that you give us permission to"…it's not something that many really want to do. So, I prefer the term “seamless banking,” “invisible banking,” “frictionless banking.” It's all about making banking simpler and easier for the customer. So, from the customer's perspective, it should be shown as the benefits of what that means and not said to be, "We're going to give your data to other people who maybe you didn't give permission to, or you didn't realize you had."

LG:

Yeah, I think that term you use, seamless, would be a good term. That's probably what would be good for consumer adoption as if they don't actually know it's happening, they don't actually know and open banking is just a rail that it happens on, and that payment or the sharing of data is completely seamless to them.

CS:

Yeah, I mean, it's a bit like my main browser is Google Chrome, and the reason for that is that it stores all my bank cards, so I don't have to get my cards out when I'm making a purchase. That is what I think of almost like open banking, it's integrated into my browser, it's integrated into my phone, it's integrated into my life, so I don't have to think about which bank or service am I using. One of the great things about many of the unicorns that are out there and take examples of FREENOW, which is like an Uber... In fact, Uber is also the same. It's just using APIs. Uber and FREENOW as car services are bringing Google Maps and Stripe, which is a payment checkout service, and others, into their app. You don't realize that they're there, but they're there in the background. It's the invisible, seamless, frictionless experience that improves the customer's daily life.

LG:

Yeah, absolutely. The term open banking is quite a broad term, and then we start talking about open finance. And in some markets, we see open banking meanings like payment initiation and other markets it's just data sharing. So, do you think there's a better distinction around that we can do as well?

CS:

Well, I think there's layers. At the highest level, it's just open, underneath that you've got open health, open retail, and open airlines and transport. So, all industries are open. Then underneath that you've got the segmentation of those industries, so you've got banking, but you've also got asset management, wealth management, funds management, investment banking, et cetera. Then underneath that you've got more processes around trading, settlement, funds management, asset management, digital asset management, et cetera. So, it's layers and layers. Over the next decade, you'll start to see open finance starting to integrate open health and open wealth and open travel and open retail and more services into a complete system. And how that develops is going to be really interesting.

LG:

No, absolutely. Then, so from a consumer's perspective, what might a hypothetical use case be in the future if there was maybe three to five years down the line and we have a full open finance or open data ecosystem? Are there any exciting use cases that you could give us an example of?

CS:

Well, I mean, maybe the easiest one to pick on is one that came from Nordea, which is a bank in my Nordic Future Innovation Group. They were talking about open banking, and they picked on car insurance and said, "Imagine the day that you have a crash in your car." Typically, what happens when you have a crash, you go, "Oh my God, what do I do? What's my insurance company's telephone number? How do I get hold of them? I need to get a taxi or a tow truck." It's an appalling experience. But their idea was that they could use the open API financial system to link your car to the bank, to their insurance services, to the tow trucks and taxis and all the things that you would need in that actual moment. So, they're looking at the whole end-to-end experience of a particular customer exposure and saying, "We'll link you to the whole ecosystem of what you need to that experience or moment in your life and it's seamless and integrative."

So, the bank provides that to you, and all you have to do is say, "Yes, I'd like that." Then if you're moving home, the removal firm ter\ams up through the bank's API that's integrated in open finance with the removal companies, as does the insurance that goes behind the move, et cetera, et cetera. So, it is really all about customer journeys and customer experiences.

LG:

Yeah, that rings true to what you said earlier about maybe seamless payments is the right word. That sounded to be what you were describing then. So, one of the other things I just wanted to touch on was how things have developed differently in different markets. So typically, that distinction is made between a regulatory-driven market, or a market-driven particular country, for example. So, in the EU and UK it's very regulatory driven and perhaps in parts of Asia and in the U.S. it's very market driven. And there's obviously advantages and disadvantages to both. I just wonder if you could maybe touch on some of those.

CS:

Yeah, it's interesting at the moment. We have a lot of markets moving in different directions. So, I see a number of markets that are moving from consumer need and consumer experience. In fact, I just wrote something about a lot of the African unicorns and bearing in mind that Africa is not a country, it's a continent. You see really interesting things happening in Nigeria, Zimbabwe, Rwanda and other markets where most of it is payments driven. It's connecting people through the network of the telephones to offer payment connectivity services. Five of the seven unicorns in Africa are payments, fintech startups, so like Flutterwave or OPay. You learn a lot from looking at those countries because they approach things very differently. I always remember I used to use a slide saying, "What is this card you have?" talking about card services.

In Asia in particular, I'm very close to the Chinese company and group Tencent. I follow them very closely with their financial services in WeChat Pay and Alipay. They're very much focused on the market-driven customer experience. So, when I was talking to M-PESA in Kenya, for example, and I said, "How do you compete with banks or how do banks compete with you?", they said, "We don't compete with banks, and they compete with us by copying what we do because we focus on the customer." That was a very telling statement. When I look at America, and I often say this about Europe and America, I think we're actually quite a way behind. Our infrastructure began in the 1960s and 70s, and then we layered stuff on top of that infrastructure through the next decades. That's why we still have a very slow-moving market that even uses checks, which you don't see hardly anywhere else in the world these days.

But I think overall, and I always come back to this statement, if we're ever talking about banking as a service, which is a term that I invented in my view, because I did it in 2008, the one thing that I always come back to saying, you can't provide banking as a service if you're not a bank. You must be a bank to provide banking as a service. And that's the critical part. The reason I say that is the banks are licensed, trusted, regulated and they actually have the one thing that other companies don't have, which is the guarantee to reimburse you if any money is lost.

LG:

Absolutely, yeah. So, I mean, I get to see both sides really. So, I participate at the Financial Data Exchange, which is a standard-setting body in the U.S. working towards permission dat- sharing specification, which is all very market driven. I participate in The Payments Association here in the UK on their projects, open banking. It's quite interesting to see those contrasting developments. I think regulation almost appears to create a bit of friction between fintechs and financial institutions, which perhaps doesn't exist in some of those market-driven scenarios. But really, shouldn't the ultimate aim be an enhanced customer experience via the provision of new services versus perhaps people just seeing it as an obligation because they've been regulated to provide certain APIs, for example?

CS:

Again, from my experience, the main thing that happens with banks is that they compete with each other to get market share or M&A acquisition of competitors. And they tend to only innovate and do new things when they're told to by the government and the regulator. They don't focus on the customer journey and the customer experience as their start point so much because I think they know that once they've got a customer, they probably won't lose them. I think this is where we're turning around the markets today.

When I look at Gen Z and Millennials, and I think this is a critical point, they view things very differently to the Boomers and other generations because they still like to have a bank and a branch and a human to talk to, but they equally would quite happily move to a Bitcoin wallet or to other services if they felt that that was more cool and hip and fun. The danger with that, and the headline statistic I just got today in fact, is that $14 billion was lost in crypto scams last year. So, I wouldn't want to be trusting a web service that was not regulated. I think you need to trust services that are regulated.

LG:

No, absolutely. Some of those, I mean, it can be opportunities for financial institution banks where perhaps fintechs can provide services that they wouldn't or enhanced experiences. Do you think that's something that financial institutions should look more at as an opportunity rather than an obligation even in those regulated markets?

CS:

Yeah, I mean there's two or three things happening right now. So, banks are moving into offering cryptocurrency services and vaults for their clients because clients want them. They know their clients are putting money into digital assets, so digital asset management is a critical space. But the two contrasting things that I always come back to when I talk to banks or fintechs, is fintechs should focus on solving the things that banks do badly or that they don't do at all, which is what the Stripes and Klarnas have created. And banks should focus on leveraging fintech services to solve the things that they can't do themselves very well. I was involved in the FCA UK Sandbox as part of their project and innovation group in the past decade. The interesting thing was that when they brought companies into the Sandbox, it was typically companies that were trying to help banks solve things that they couldn't do very well, like improving customer onboarding and anti-money laundering or improving services around payments and making them easier on mobile apps.

In the open-banking, open-finance context, that's where I think it's quite critical. So, what you end up saying is if you've got fintechs that can do one API, that you can plug into a bank service, that makes it better for the customer and easier for the services to be used, that's fantastic. And again, one of the things I regularly say is that there's now about 25,000 fintech startups worldwide, which is huge and getting huge amounts of investment. So, if a bank thinks it can do 25,000 things better than 25,000 startups, I think they've got a screw missing. What you have to do is say, "What are the things that we can do best ourselves? And where are the gaps or the things that we're finding that we're struggling with? And which fintechs therefore, of the 25,000 worldwide, should we be bringing into work with us?" Because the customer doesn't want to look at 25,000 companies and try and work out due diligence. Should I use them? A bank can do that and should do that.

LG:

I think that's a really good summary. So as a global payments network, we absolutely see the benefit of global standards. Again, maybe I'll just use that contactless as an example where I can use my UK-issued contactless card anywhere in the world that has contactless. Chris, it's been a pleasure. Thank you very much for your time. Is there any other closing comments you'd like to make around open banking today?

CS:

Well, the only thing I'll finish with is how can we use digital for good? I think there's an intersection between technology and finance to improve society and the planet and bring back our moral compass and make us socially useful as financial people, because we have been accused 10 years ago of being socially useless. That to me is going to be a really interesting topic, again, of debate for the next decade, which is how can we use financial services and technology to improve society and the planet for sustainable and renewable green services?

LG:

No, that's a great point. Thank you very much.