The future ofbanking is openHow to seize theOpen Bankingopportunity
ContentsForeword1What is Open Banking and why does it matter?4The UK banking market is due for transformation4Open Banking regulation has evolved from the original intent5There is a wider societal shift towards transparency and API-based data sharing9How will the banking landscape change?11Propositions will be deployed in waves, with increasingly innovative use cases appearing11Open Banking can be used to create value in a number of different ways15Market players are responding in different ways to the opportunities and threats16A number of different scenarios may emerge with different groups benefiting24Open Banking could drive benefits for the industry but may have unintended consequences25Regulators need to ensure sufficient speed of progress while protecting customers25What will it mean for customers and what is the size ofthe opportunity?26Current awareness is low but is significantly higher for SMEs than retail customers26Low awareness of Open Banking and PSD2 is not surprising28Satisfaction with incumbents and data security concerns create headwinds for new players30Similar challenges have been overcome before in adjacent industries36Uptake will vary across SMEs and retail customers over the next five years37Retail customer uptake is expected to scale up significantly over the next five years38Open Banking has the potential to create a revenue opportunity of at least 7.2bn by 202243How should firms respond?44Firms should focus on a few differentiating capabilities44Companies could adopt a number of partnership models45Regardless of their positioning, successful firms will have some common characteristics47Firms need to address a number of important areas to be confident of success48
ForewordIt is more than half ayear since the UK’s OpenBanking experimentbegan, and yet, on thesurface, very little haschanged in the retailbanking landscape. In fact,if you were to bring up thetopic at a dinner party,you would mostly likelybe met with blank staresor apathy.However, atop the glass towers ofthe country’s largest banks andwithin the Shoreditch offices ofFinTechs, executives are discussingOpen Banking as a hugely importantstrategic issue due to its powerpotentially to both disrupt and createnew opportunity.In our report we cover why OpenBanking matters and how the bankinglandscape may change going forward.We also size the market for potentialrevenue opportunies, and outline howfirms could respond to capitalise on theopportunity and address the disruptivethreat head on.By conducting interviews withexecutives and Open Banking leads atthe country’s most influential financialservices organisations and FinTechs,combined with a survey of over 1,000retail and SME customers, we havedistilled the key insights in the OpenBanking space.Jonathan TurnerOpen Banking LeaderPwCThe future of banking is open - how to seize the Open Banking opportunity1
A message from theOpen Data InstituteAt the Open Data Institute, we workwith companies and governmentsto build an open, trustworthy dataecosystem, where people can getvalue from data and its impacts do noharm. We are proud therefore to havepartnered with PwC Strategy& onthis report which takes insights fromcurrent market players and outlineskey actions to seize the opportunityand benefit Open Banking brings forbusinesses and consumers.We are more aware than ever beforeof the importance and value ofdata about us, and how it is sharedand used. This not only applies tofinancial services, but across a widerange of sectors from utilities toretail to transport. Whilst the valueof this data is not disputed, questionsaround who has access to it and forwhat purpose have become ever morerelevant, both for us as consumersbut also for those organisations thathave access to data.Open Banking touches on all ofthese important themes. A thrivingcommunity of innovators is ready totranslate our transactional statementdata into valuable tools to help usmanage our finances better, to findnew and better services more easily,and to connect our banking data toother services in housing, travel,health and utilities.As such, Open Banking has thepotential to radically transformthe way in which we engage inbanking services, receive moneyand make payments. It is likelyto cause significant disruption tohow consumers (personal andparticularly small businesses) thinkabout banking, who should providebanking services, who will informand guide us, how, when and whywill we allow organisations thatare not our banks to have accessto our financial data. Could thiseven change the composition of thetraditional banking institutionallandscape? Some think this couldbe the catalyst behind a revolutionin how we perceive personal andSME banking.Finally, Open Banking has trust andconsent at its heart the exchangeof data will be for services thatadd value and it is that which willdrive the adoption of new productsand services.We hope you find this reportinsightful and useful and please doget in touch.David BeardmoreCommercial DirectorOpen Data Institute2The future of banking is open
Executive summaryOur clients are treatingOpen Banking regulationas a critically importantstrategic topic that cannotbe ignored due to the sizeof the opportunity andthe potentially disruptiveimpact it could have onthe financial serviceslandscape.Consistent with wider social shiftstowards transparency, data standardsand sharing, Open Banking is anenabler for increased competition,innovation and customer centricity.The UK is at the forefront of OpenBanking innovation globally, with theCompetition and Markets Authority(CMA) mandating that from January2018, the nine largest current accountproviders must offer standardisedapplication programming interfaces(APIs) for current accounts to AccountInformation Service Providers (AISPs)and payments for Payment InitiationService Providers (PISPs).By providing access to this data tothird parties, Open Banking levelsthe playing field between traditionalincumbent financial services providersand new disruptors. Incumbents are atrisk of falling behind more technologyenabled peers as well as new marketentrants, such as FinTechs. They arechallenged by the potential entry intofinancial services by prominent playersin other industries, in particulartechnology giants who may nowbe encouraged to innovate in areaslike payments.While many customers’ concernsabout security and privacy currentlyoutweigh the perceived benefits, thereis already a large target market forOpen Banking solutions. We estimatethat Open Banking has the potential tocreate a revenue opportunity of at least 7.2bn by 2022 across retail and SMEmarkets. Examples of the numerous usecases enabled by open API data includeaccount aggregation, better financialmanagement, credit scoring thin-filecustomers, and integrated lending andaccounting platforms for SMEs.Over time more innovative propositionsshould completely change how financialservices are delivered and integratedinto everyday experiences. Ouranalysis also suggests that companiesshould target affluent, young, urbanpopulations as an initial customermarket although this will grow andwiden as propositions mature.Companies need to ensure that theyhave a compelling vision of how theywill stand out in a highly competitiveand transparent environment. It isnot feasible to chase all the potentialOpen Banking opportunities, so firmswill need to focus on developingdifferentiated propositions andcapabilities. They will need to makechoices about addressing capabilitygaps through acquisition, partneringor operating as part of an ecosystemof providers.Regardless of positioning, thereare some common characteristicswe believe are required to succeedin an Open Banking environmentwhich include: a customer centricoperating model, strong data analyticscapabilities, integrated and securetechnology platforms as well as an agileand open working culture.Although the future is uncertain,companies cannot afford to wait andsee how it unfolds. A strategic approachto Open Banking is critical if companieswant to be confident of success.The future of banking is open - how to seize the Open Banking opportunity3
What is Open Bankingand why does it matter?Whatever the motivationand the mechanism for itsintroduction and despitethe potential pitfalls,the application of OpenBanking principles couldsignificantly change theshape of banking forthe better.The UK banking market isdue for transformationThe UK has long been recognised as aglobal leader in banking. The industryplays a critical role domestically,enabling the day-to-day flow of moneyand management of risk that areessential for individuals and businesses.It is also the most internationallycompetitive industry in the UK,providing the greatest trade surplus ofany exporting industry. As outlined inour thought leadership piece for The CityUK, ‘A Vision for a Transformed WorldLeading Industry’ 1, the UK has a matureand sophisticated banking marketwith leading Banks, FinTechs andRegulators. However, with fundamentaltechnological, demographic, societal andpolitical changes underway, the industryneeds to transform itself in order toeffectively serve society and remainglobally relevant.The industry faces a number ofchallenges. These include the factthat banking still suffers from a poorreputation and relatively low levelsof trust2 when compared to otherindustries. Many of the incumbents arestill struggling to modernise their ITplatforms and to embrace digital in away that fundamentally changes the costbase and the way customers are served.There are also growing service gaps inthe industry, with 16m people trapped inthe finance advice gap3.In the face of these challenges, OpenBanking provides an opportunity toopen up the banking industry, igniteinnovation to tackle some of theseissues and radically enhance the public’sinteraction and experience with thefinancial services industry. As wehighlighted in our recent report ‘Whoare you calling a challenger?’ 4, a wave ofnew challenger banks have entered themarket with these opportunities at theheart of their propositions. However,increased competition is no longer theonly objective of Open Banking.Open Banking provides an opportunity to open up thebanking industry, ignite innovation and enhance thepublic’s experience with the financial services industry.Source: 1www.pwc.co.uk/FutureofFRPS22018 Edelman Trust Barometer32015 Financial Advice Review4The future of banking is open4www.pwc.co.uk/Challenger-Banks
Open Banking regulation has evolved from the original intentThe UK started introducing an OpenBanking Standard in 2016 to makethe banking sector work harderfor the benefit of consumers. Theimplementation of the standard wasguided by recommendations from theOpen Banking Working Group, madeup of banks and industry groups andco-chaired by the Open Data Instituteand Barclays. It had a focus on howdata could be used to “help peopleto transact, save, borrow, lend andinvest their money”. The standard’sframework sets out how to developa set of standards, tools, techniquesand processes that will stimulatecompetition and innovation in thecountry’s financial sector.While the UK was developing OpenBanking, the European Parliamentadopted the revised paymentservices directive (PSD2) to makeit easier, faster, and less expensivefor customers to pay for goods andservices, by promoting innovation(especially by third-party providers).PSD2 acknowledges the rise ofpayment-related FinTechs and aimsto create a level playing field for allpayment service providers whileensuring enhanced security and strongcustomer protection. PSD2 requiresall payment account providers acrossthe EU to provide third-party access.While this does not require an openstandard, PSD2 does provide the legalframework within which the OpenBanking standard in the UK and futureefforts at creating other national OpenBanking standards in Europe will haveto operate.The common theme within theseinitiatives is the recognition thatindividual customers have the rightto provide third parties with accessto their financial data. This is usuallydone in the name of increasedcompetition, accelerating technologydevelopment of new products andservices, reducing fraud and bringingmore people into a financiallyinclusive environment.The future of banking is open - how to seize the Open Banking opportunity5
Figure 1: Open Banking timeline (2013-2020)2013Revised PSD2 proposal(EU, July 2013) Proposal for a revised PSD2 publishedby the European Commission Recommended that Payment AccountProviders to allow third parties withappropriate consent to share accountinformation and initiate paymentsFingleton Report(UK, September 2014) Report published by The OpenData Institute and FingletonAssociates Recommended that banks createstandardised APIs accessible tothird parties2015Open Banking Standards(UK, February 2016) Initial set of guidelines published byHM Treasury Outlines how Open Banking datashould be created, shared and used Objective to enable the creation of anOpen Banking data ecosystemPSD2 text published(UK, January 2016) Publication of the final text in theOfficial Journal of the EU Member states required to applymajority of provisions within2 yearsPSD2 deadline(EU, January 2018) Requires all payment serviceproviders (PSP) to allow open dataaccess to customer account andpayment services to 3rd parties Applies to all payments where one PSPis in the EEACMA 9 deadline(UK, January 2018) 9 largest UK current accountproviders to open API for currentaccounts Only FCA approved businesses willbe provided access to open APIs Customers will have to opt-in toshare data201720192020PSD2 RTS deadline(EU, September 2019) Prohibits access of data beyondthat explicitly authorised bycustomers Screen scraping techniques willbe banned Strong customer authenticationrequired for electronic paymentsSource: Payments UK, PwC Strategy&6The future of banking is open
Although the initial objectives of the OpenBanking standards were to increase competitionin banking and increase current accountswitching, the intent is continuingly evolvingwith a broader focus on areas including: reducedoverdraft fees, improved customer service, greatercontrol of data and increased financial inclusion.Figure 2: Additional expectations ofOpen Banking standardsReducedoverdraft feesImprovedcustomerservice Greatercontrol of dataSource: PwC Strategy&IncreasedfinancialinclusionWhilst there is little argumentthat the UK leads the way in OpenBanking (figure 3), it is by nomeans doing so alone. Many othercountries are looking carefully atthe UK experience to understandhow a local implementation mightbenefit from some of the issuesexperienced during the UK’spreparation and ‘soft launch’ inJanuary 2018. There are manyinformal networks around theworld, which link regulators,FinTechs and banks to facilitatethe sharing of information fromone market to another.One danger in any internationalshift in thinking, such as OpenBanking, is that technologyovertakes the original intention.The ‘core technology’ here is openAPIs and they feature in all theinternational programmes, evenwhen an explicit ‘Open Banking’label is not applied. In a postPSD2 environment, the primaryresponsibility for security riskswill lie with payment serviceproviders. Vulnerability to datasecurity breaches may increase inline with the number of partnersinteracting via the APIs.Countries around the world areat various stages of maturity inimplementing Open Banking.The UK leads as the only countryto have legislated and built adevelopment framework tosupport the regulations, enablingit to be advanced in bringingnew products and services tomarket as a result. However, anumber of other countries areprogressing rapidly towardstheir own development of OpenBanking. In a second group sit theEU, Australia and Mexico, whichhave taken significant steps inlegislation and implementation.Canada, Hong Kong, India,Japan, New Zealand, Singapore,and the US are all makingprogress in preparing theirrespective markets for OpenBanking initiatives.The new EU General DataProtection Regulation (GDPR)requires protecting customer dataprivacy as well as capturing andevidencing customer consent,with potentially steep penaltiesfor breaches. Payment serviceproviders must therefore ensurethat comprehensive securitymeasures are in place to protectthe confidentiality and integrityof customers’ security credentials,assets and data.The future of banking is open - how to seize the Open Banking opportunity7
Figure 3: Global Open Banking league tableCountry Initiatives The CMA set a deadline of January 2018 for the UK’s9 largest current account providers to Open APIs for current accountsGroup1UK Banks will also be impacted by additional PSD2 Regulatory Technical Standards regulation inSeptember 2019 that bans screen scraping Western European countries (e.g. Italy) are adopting the Berlin Group standard (Germany’s APIstandards for compliance with PSD2)Group2EU In Germany, current account APIs are already being used for processes such as onboarding andcredit scoring (e.g. Fidor) Nordic banks, due to operations across the region, are waiting for a regional API standardAustralia The recommendations published in December 2017 for the Australian Treasury gives customers aright to direct that the information they already share with their bank be safely shared withothers they trust Open Banking is part of the ‘Consumer Data Right’ in Australia, a more general right beingcreated for consumers to control their data, including who can have it and who can use it, withBanking the first sector to which this right is to be appliedMexico Mexico’s law regulating Financial Technology Institutions (‘The FinTech Law’) became effectivein March 2018, permitting Open Banking and also giving FinTechs greater regulatory certaintyaround crowdfunding, payment methods and cryptocurrencies The Mexican authorities have looked carefully at the UK experience and applied a number offeatures of the UK framework, including the customer consent model and a regulatory sandboxGroup3USA The payments association, NACHA (National Automated Clearinghouse Association), hasspearheaded efforts with their API standardisation programme announced in 2017 built around‘16 API Use Cases That Will Transform the Financial Services Industry’, grouped around: fraud &risk reduction, data sharing and payment access It is unclear yet whether the US will introduce an open API standard which would allowcustomers to choose services to which they want to give access to their bankingJapan In May 2017, the Amended Banking Act decided to introduce a registration system for ‘ThirdParty Providers (TPPs)’ and to announce policies for collaboration between banks and TPPs withthe Japanese government expecting more than 100 banks to open APIs in the next few years Individual banks are launching their own efforts to enable secure access to its data from its onlinebanking systems from third-party applications – e.g. the Mitsubishi UFJ Financial Group (MUFG)is reportedly examining such opportunities The Monetary Authority of Singapore (MAS) is focused on a commercially driven rather than aregulatory driven approach to Open Banking, working with many banks opening up APIs as partof their ongoing developmentsSingapore For example, Singapore’s largest bank, DBS Group Holdings, recently launched a platformenabling third-party developers to access more than 150 APIs to integrate functionality into theirown services, like real-time paymentsHongKongNewZealandIndia The Hong Kong Monetary Authority (HKMA) published its draft Open API framework in January2018 marking the start of a public consultation outlining its intentions to move towards a ‘NewEra of Smart Banking’ New Zealand is developing their Open Banking framework predominately through thevoluntary cooperation of its major financial services p
banking industry, ignite innovation and enhance the public’s experience with the financial services industry. 4 The future of banking is open. Open Banking regulation has evolved from the original intent The UK started introducing an Open Banking Standard in 2016 to make the banking sector work harder for the benefit of consumers. The implementation of the standard was guided by .
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Le genou de Lucy. Odile Jacob. 1999. Coppens Y. Pré-textes. L’homme préhistorique en morceaux. Eds Odile Jacob. 2011. Costentin J., Delaveau P. Café, thé, chocolat, les bons effets sur le cerveau et pour le corps. Editions Odile Jacob. 2010. 3 Crawford M., Marsh D. The driving force : food in human evolution and the future.