Jack Daly

In my last post I discussed the value of open banking and some key implementation considerations. Yet despite signs and incentives to innovate in the direction of open banking platforms and partnerships, there are distinct hurdles for different players in the financial services sector depending on their current position, history and willingness to purse an open banking agenda.

These have been amplified even more by the advent of Covid-19 and the short and long term impacts it will have on individual business and entire industries.

Additionally, with one-third of revenue growth already going to companies that entered banking and payments market since 2005, it is clear the market has already been disrupted, and incumbents must make bold decisions around their future IT service offerings. To navigate these hurdles, the Accenture Banking Ecosystem Index identifies readiness for banking ecosystems across four dimensions:

• Legacy systems – particularly within European and North American banks pose a significant problem in moving efficiently towards the open banking model.
• Regulatory changes - such as those made with PSD2 that are encouraging banks to make changes
• Digital attitudes - of customers affecting the demand for integrated propositions
• Partners dimension - in securing the best and largest across industries to ensure rapid customer adoption

In terms of overall readiness across the four dimensions listed above, all major regions score within relative proximity of each other in line with their own strengths and improvement areas. The research suggests that banks know what they need to do but are unsure about how to do it, which can be further compounded by challenges and concerns in relation to customer experience, technology and security.

Comparing maturity of financial services’ open platforms

So how ready is Ireland and what are the key considerations and next steps in embracing open banking? As with many other European banks, Ireland institutions are in the midst of their PDS2 compliance journeys. However, once in a post PSD2 compliance landscape, Irish banks will need to distinguish their strategy for open banking by facilitating the usage of APIs. This will mean pushing past PSD2 requirements beyond their comfort zones and expanding their open banking strategies to encompass traditionally non-financial services offerings.

Singularly important in the case of Ireland, is the fact that it does not have a significant concentration of large potential partners that lends itself easily to the partnership model. A recent 2019 RTE report in conjunction with UCC, showed that 90% of businesses in Ireland are micro-businesses of between 1 and 9 employees, mature in age and closely related to the families that own them.

This is an incredibly important economic landscape factor to consider for Irish banks seeking to launch an open banking strategy, as most of the businesses in Ireland are small and wish to remain so. The report highlights that 71% of small business owners want to keep their business operating as it is now. Yet despite their small size, Irish enterprises displayed a significant appetite for innovation (exceeding levels seen in firms of comparable size in the US and UK) and also high rates of technology adoption as shown below.

Ireland in particular must also consider accessibility from a retail banking perspective as open banking will largely involve digital offerings. Ireland has a large proportion of traditionalists or in other words, consumers that lack confidence in technology and are uninterested in new products and/or services. Innovation for those that are less digitally active may prove to be a crucial differentiator for banks seeking to provide solutions for greying population trends. Furthermore, as stated in a department of finance independent review of the local public banking in Ireland, more than a quarter of rural households do not have internet access while many other rural counties fall below urban and national averages regarding broadband speeds. The report goes on to state that “in the absence of other supports, poor internet and broadband access restricts the ability of these households to access online financial services, and increases the risk of financial exclusion”. This is a clear and vital consideration which must be woven into the strategy of Irish banks when tackling open banking.

So how can Ireland become more ready? In 2018 Accenture provided some suggestions on specific steps that could be taken to expose developer friendly APIs:

1. Seek out best practices from outside the financial services industry
2. Develop a strategy to identify and distribute open APIs for each client segment
3. Identify the value in going beyond compliance
4. Introduce transparency in pricing and commercialise new revenue models
5. Accelerate network effects by delivering innovation through a platform

The last of the above points if implemented properly, could see the greatest benefits realisation industry players that exploit first movers advantage by engaging with partners early. Some banks already have a few fintech type labs which they are using to court developers and encourage the creation of services through APIs and find out the most promising areas for future improvement. Ulster Banks’s Dogpatch lab is one such example available in Ireland, with many other incubators around the country poised to exploit the future potential of ecosystem banking.

Planning for these steps will require careful consideration of the potential directions one can take in relation to open banking and the associated challenges with that chosen path. Further to this are more unique circumstances pertaining to the Irish economy, its demographics and infrastructural hurdles which Irish banks will need to factor into their strategies.

Conclusion

Through this blog series we have explored the new world of open banking and its potential to drastically shake the financial services industry from the roots up. We have touched on many successful examples of open banking in and outside of the financial services industry, examined where the challenges lie but also the significant potential on offer and how the banking industry in Ireland can be ready for this oncoming wave of change. What is important to remember is that despite hesitance from within the industry, it is customers that appear to be less against the idea of open banking more than the institutions. A 2018 Ipsos report  concluded that despite initial caution to the overall concept, particularly in the realm of data security, most of the participants surveyed “expressed appetite to adopt if the benefits were clear, relevant and reward focused.”

Market sentiment such as this should be a key indicator that although disruption like this can often be challenging, with billions in potential market value estimates ranging into double figures and the budding technology partnership opportunities, banks in Ireland must consider how they are to expand upon their existing PSD2 investments to create value for new & existing customers, and themselves.