The era of so-called ‘Open Banking’ looks set to arrive in South Africa within the next five years, writes global consulting director Nick Tuttelberg. Regulatory change to deliver it has already been made in Britain, Australia, with Europe not far behind – so it’s only a matter of time before we follow suit.
Open Banking empowers consumers to take control and ‘own’ their data records, by giving them the option of authorising their own banks to share their data, personal information, account history and transaction patters, with any other vendors they deem appropriate – and that’s across any sector from finance to retail.
Banks will be obliged to share data via Application Programming Interfaces (APIs), or Screen Scraping, with adapted blockchain technology likely to deliver the back-office requirements, compliance and security to support customer requests. Consumers will issue a personal access code to banks confirming their wish for application and transactional data to be passed to nominated third parties via a secured platform.
But the prospect of moving towards this model is already alarming senior bank staff, given the powerful data they once exclusively owned now has the potential to be shared across multiple vendors – when consumer consent is forthcoming.
The impact of this change will also have far-reaching consequences should South Africa not be prepared for it.
The practicalities of delivering Open Banking is already creating some headaches for banks where the regulation has been adopted, especially given implementation has been vying for attention alongside the changes associated with GDPR (General Data Protection Regulation) and PSD2 (Payment Services Directive 2).
But bank executives know the opportunity for new-to-market, lean and emerging competitive fintechs is endless. They’re agile and innovative enough to play catch up to the large banks very quickly, they’re not weighed down by legacy systems and don’t need 10 years’ account history to get a decent picture of a customer’s behavior and lifestyle. Much of the proposed changes are likely to only apply to current accounts to begin with, but will be quickly extended to include many other financial products.
Fintechs also don’t not need large corporate offices, or high overheads like city centre branch networks, to position themselves, because all interaction with clients will be digital, seamless and tailored to suit their specific needs. Customer transparency will also take on a new meaning as aggregators will also rise into the market as they shop around for the best consumer deals – not unlike the existing Insurance market.
It means loyalty will be at an absolute premium, as digitally-savvy, well-informed clients are continually offered the best deals in the market – irrespective of history.
The journey for South Africa’s banks, which most have started already is to perfect a ‘client-centric’ approach, to move away from product focus to client focus. By moving to a more digital, pre-approval model by customers will help ensure well-established banks effectively combat the impact of open banking.
But banks need to make sure that all clients are offered at source optimal deals for all financial offerings to ensure there is no reason to look around for a better deal. It also heaps pressure on banks to better segment and categorise consumer data, to pre-empt lifestyle changes that continually suit consumers’ specific financial needs.
The journey goes from understanding what is a consumer’s credit score, and education on how to improve it – all the way up to pre-approval and income/expense estimation for lifestyle changes like a new vehicle, or loan, based on a new baby in the family, to a child going to university after school.
To do this, banks will need to look at consolidating internal, external and alternate datasources on a trusted optimisation platform to get a full 360-degree view of a consumer’s data and what tailor made solutions are likely.
At Experian, we have straightforward cloud-hosted solutions implemented locally and globally that already manage this need on bespoke platforms, which enables our clients to manage their customer base optimally, without consumers having to shop around for the best deal every time their financial requirements change. It’s a proven approach, which not only ensures greater loyalty, but will also address higher utilisation rates.
So, while Open Banking does pose a large-scale impact for those not prepared, it does offer some good opportunities to increase revenue and market share for those ready and willing to face the changes.