Regarding technology, the old Bill Gates quote about overestimating its influence in the short term but underestimating in the long term holds true.
While we don’t expect the recent Open Banking launch to change the specialist banking market environment overnight, we expect some traction in adoption by 2020.
As such, we believe the use of account information services (AIS) or payment initiation services (PIS) will likely become the new normal.
In terms of payment services, it will not be long before ‘big-tech’ companies such as Facebook and Amazon follow the lead of Tencent (WeChat), Alibaba (Alipay) and Baidu (Wallet) and offer payment service solutions for their users. The familiarity of these brands could help convince the general UK public to overcome any cynicism and embrace Open Banking.
Overcoming the data privacy and fraud concerns of the general public is why the industry’s reaction to inevitable stories regarding attempted hacks of third-party-providers (TPPs) is important.
Increased public concern will undoubtedly hit any momentum that the Open Banking launch generates and debilitate fast-track changes in the specialist banking market.
The drive has been initiated by the Competition and Markets Authority (CMA) in response to their findings that large and established banks “do not have to compete hard enough” for customers, while effectively squeezing out new market entrants. We believe that the services that these new fintech entrants can provide can be beneficial to the consumer. Banks that use the right blend of internal and third-party products can create an optimal banking experience for their customers and, in that respect, maintain and intimate new customer loyalty.
Traditional banks will need to make a choice about whether they want to continue to offer their own limited range of products on a higher margin or relinquish the customer interface and host an app-style marketplace – such as Temenos MarketPlace – for TPPs which then clear through their bank accounts. Any resulting loss of margins may need to be funded by annual banking fees, which could be a difficult sell in the current market.
Several banks are already rising to the customer service challenge raised by market newcomers with their own apps – ING releasing Yolt, and HSBC releasing Beta – but other banks may simply purchase or consolidate with the best TPPs. Using the banks own app, in theory, reduces the risk of fraud.
The widespread adoption of robo-advice, powered by AI, is forecast to increase assets under management while it continues to take on the established practices of the wealth management industry. Robo-advice makes the construction and management of portfolios accessible to a wider range of people, at a lower cost.
The traditional mortgage application process will see gains in efficiency and a shortening of the cost and length of the underwriting process. Technology – enabled by Open Banking – to be incorporated into the mortgage-application process will use non-conventional variables, such as education data, big-data analytics, financial history and employment history to quickly review and approve loans.
This will replace the traditional requirement of three months of payslips, three months of statements to be scanned or emailed to the underwriter. We believe challenger and even traditional banks will use these data metrics by 2020 to offer better deals for retail and business customers who embrace Open Banking.
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