By Marie Walker, Finance Edge
3rd December 2018
The other day I caught up with James Varga, CEO of The ID Co., for a coffee. As you’ll probably know, James is a leading voice in bank data innovation. As a highly experienced FinTech entrepreneur his enthusiasm for open banking, and ability to cut straight to the nub of the matter, make him a very interesting guy to chat to.
With no particular agenda we found ourselves discussing two themes, where is the value going to come from in open banking? And is customer engagement going to be a big issue? Here are a few thoughts from our musings:
Where is the value?
One key benefit of open banking will be an improved ability for consumers and lenders alike to test appropriateness for a product - can you (can they) afford it?
In the past (and to a large extent still) lending decisions have been based on creditworthiness checks that focus on an applicant's past behaviour (repayments) and current salary. Affordability was considered as a factor, but, overall, the focus has mostly been on risk assessment for the benefit of the lender.
In recent years, concerns about responsible lending practices have prompted the FCA to redefine how affordability is addressed. Responsible lending practices now look forward at how changes in circumstances may affect the borrower. By giving consumers a clear view of all their financial data and behaviours, open banking propositions in future should provide them - as well as the lender - with simple modelling tools to help them make the best decisions. (More on affordability here: https://theidco.com/blog/fca-guidelines-offer-sustenance-to-financial-credit-system/)
Value will be seen when the consumer gets onboard with the possibilities of open banking. Giving them the ability to facilitate actions digitally, based on a 360 view of their financial data. Which leads us on to customer engagement...what will incentivise consumers to do this?
How do will we encourage consumers to use open banking propositions?
James has a pet peeve with some of the discussions surrounding open banking, specifically on the need to ‘educate the market’. His take is that consumers don’t, and won’t, care about open banking. Or, if anything, talk of sharing their data immediately makes people hesitant or hostile (particularly in the 60+ demographic). He believed that you don’t need to educate them, per se, you just need to give them a reason to use the new propositions; and what motivates consumers is convenience.
The biggest shift in banking this year is that open banking allows the finance industry to consider something new. It’s making banking less risk averse, and more innovative and collaborative. Open banking as a programme gives the industry support and permission to use data more effectively. In banking the trust networks are already there - between banking entities and also between banks and consumers - open banking unlocks it.
However with monetization still at an early stage Banks are still, generally, only paying lip service to ‘all in’ products, in reality it is still conventional banking. Talk about propositions is often around lists of ‘stuff’ with no context (behaviour) attached. What’s needed is the colour: Who are you? Where are you? Where have you been? Where are you going? - with calls to action attached.
James’s parting comments were that people don’t want to save they want to spend. Giving them a very simple view of whether they’re easily keeping within their months’ budget (‘hey let’s go out to dinner tonight!’) or overspending (‘...perhaps just a takeaway’) would be using open banking to give the consumer a complete, real time view, of their spending power - James believes it’s that kind of convenience that will win hearts and minds.