Open banking: a new pace of change

As the banking sector moves towards open banking, AB+F and Fiserv brought together key industry participants to talk about the opportunities and challenges in meeting the compliance timeframe. Christine St Anne reports.

Shan Yong, Head of Consulting, Fiserv
Marc Odorico, Client Partner, Fiserv
Karen Ganschow, General Manager Consumer Marketing & Strategy, NAB
Iain Turnbull, General Manager of Unsecured Lending, NAB
Katie Mihell, Director Business Development, Westpac
Ryan Gonsalves, Head of Retail Banking Strategy & Innovation, AMP Bank
Chris Merrett, Product Manager- Payments, AMP Bank
Emma Ringland, Digital Owner – Digital Market Place, Westpac
Andrew Stabback, CEO, AB+F
Kate Wilson, Research Director, RFi Group

The retail banking environment in Australia remains complicated. Notwithstanding the royal commission – which is due to report in early 2019, digital transformation remains a key priority for retail banking institutions. Amid this complex environment, the Australian government has now given the go-ahead to move to open banking. Held as part of RFi Group’s Australian Retail Banking Conference, AB+F together with Fiserv brought together leaders in the industry to discuss the challenges and opportunities they are confronting as their organisations prepare for this new data regime.

“Some organisations see open banking as just another compliance program, but we see open banking as really a new pace of change,” Fiserv’s Yong said. He highlighted key dates around the compliance regime including the first compliance date in July 2019- where the big four will need to open their customer data to third parties.

Yong called the roundtable participants to imagine that tomorrow is July 2019. “How great would the press headline be that your bank makes the news because not only have they complied with the July 2019 deadline but that they are well ahead in terms of getting to the February 2020 timeline and are even on track for the July 2020 deadline. This will also help banks to remain on track with any of their innovative customer propositions. “Going to the press and saying: ‘I have made the compliance deadlines’ is a good news story. What you absolutely want to avoid is being in the press because you have missed that compliance deadline.”

RFi Group’s Wilson set the scene in a presentation which outlined some of the key themes shaping banks and financial services providers which banks should also consider if they are to harness the monetised opportunities from open banking. Based on a survey that the global research firm runs in 10 different markets around the world – the research assessed the potential for digital disruption in different markets and fintechs.

According to RFi Group research, New Zealand leads the way in digital engagement, with 80 per cent of its consumers using digital banking on a weekly basis. Australia is not far behind – with 73 per cent of its consumers using digital banking on a weekly basis. The other interesting finding revealed was that digital banking no longer appeals just to millennials. “In those 10 key markets around the world what we’re now seeing is that consumers of all ages are using digital banking and are starting to use digital banking frequently as well,” Wilson said.

Analysis from RFi Group’s Global Digital Banking Council looked at the proportion of consumers who were comfortable using a digital-only provider – that is no use of branches - across different product types. “When we look across different product types, payments and savings are the two areas where consumers are most comfortable using digital-only providers,” Wilson said. Borrowing and financial investments is where consumers are less likely to be comfortable with digital-only providers. It is important to note, however, that here borrowing includes personal loans, credit cards and mortgages. “If we split them out, you’d see personal loans and credit cards being on the left in terms of digital disruption (mor open to using a digital-only provider) and mortgages is one of the products where consumers are most likely to want to use face-to-face channels given that it’s such a big purchase,” Wilson said.

Some organisations see open banking as just another compliance program, but we see open banking as really a new pace of change Shan Young, Fiserv

In terms of open banking, trust around privacy and security is key. The research revealed that across all markets banks are the most trusted provider or the most trusted institution. However, challenges are emerging in Australia. While trust levels are high in other markets, trust has been going backwards in Australia. Since the second half of 2015, trust has fallen from 37 per cent to 30 per cent in the first half of 2018. The global average is 42 per cent. The research predates the Royal Commission as well so that trust was already starting to go, before the public inquiry. Another challenge is also coming from technology companies. While technology companies are less trusted than banks they are increasing at a faster rate. Between the second half of 2015 and second half of 2017, there was an increase from 14 per cent to 28 per cent in these trust levels. This compares with just 10 per cent increase for banks. According to Wilson, the caveat here is that the research was done before the Cambridge Analytica data breach. “But when we look at more recent results from the UK, we’ve seen Facebook fall away in terms of trust, but Amazon and the likes of PayPal are very trusted amongst those younger customers in particular,” Wilson said. For millennials, globally technology companies are almost as trusted as banks. “Familiarity very much drives comfort as well so the more familiar they are with a company the more they will trust them even if it is a company that is a technology company rather than a traditional financial services player,” Wilson said.

Looming deadlines

However, consumers ultimately are seeing some value in open banking particularly around aggregation services which has already been highlighted in the UK. In fact, Wilson’s presentation also included research from RFi Group’s project around open banking and PSD2 in the UK. RFI Group research revealed that 31 per cent of consumers found aggregation services appealing.

When aggregation services were tested against some of those other services that would be available under open banking, aggregation services are usually the ones that come out on top across different markets as well. “Partly I think that is because consumers understand what an aggregation service would look like whereas understanding what personal financial advice would look like is a bigger leap. We are also starting to see a lot of the fintechs and even some of the incumbents in the UK moving into aggregation services.” Wilson said.

Given the issues of trust and current experiences in the UK, Wilson said banks do have an opportunity to innovate and create open API services for their customers – particularly as consumers would be comfortable using these sorts of services from their banks. “Trust is the key lever the banks have compared to challengers.”

So, what are some of the challenges that retail banking institutions will face when it comes to adopting open banking? As alluded to earlier by Yong, the sector faces a tight deadline. How do they get compliant in what is a very aggressive or compressed timescale? Indeed, on the first day of the conference, one of the questions asked by a delegate was whether 12 months was a fair period for the banks to become compliant? “The resounding answer is no but you can see what the regulators are trying to do by pushing a very hard regime to make sure everyone gets to the starting position,” Yong said. “We don’t want what we saw with the New Payments Platform (NPP), where some banks are still not NPP-enabled and therefore slowing the overall adoption of the benefits that can be delivered,” he said. The second challenge is staying compliant. “We talked about the number of compliance dates. Another challenge for retail banking institutions is to not just get compliant, but to stay compliant as the legislation evolves – all whilst ensuring that they maintain bank grade security. It’s all well and good for the technology companies of the world like the Apples and the Amazons to release multiple API versions and release new features and capabilities but they don’t have to do it under a PCI-DSS compliance regime,” Yong said.

Another challenge is the “cost of the unknowns”. Here Yong means that there is a cost of the unknown in staying compliant given the potential of high API volume transactions in production and in a developer sandbox environment. So, stage one or day one, is simply about getting compliant in very tight timescales. Stage two or day two is staying compliant but staying compliant in the world of the unknown; unknown because the legislation is going to evolve to an end point continuously, unknown because you don’t know what the upper limit of API transactions is needing support and staying compliant in a business to developer model which is something typically not all retail banking institutions are very conversant with. The final stage of open banking adoption is really day three which is what the banks really should be focused on. How do I build the innovative customer propositions either myself or with my partners that can change the customer experience so that I can increase my market share and take advantage of what open banking provides?

“So my strong recommendation is that banks still maintain a focus on day one and two compliance, but leverage your partners to do the heavy lifting for you, which in turn will allow you to free up internal resources to also focus on Day 3 together with your partners to accelerate your ability to build and bring innovative Open Banking customer propositions into the market. Compliance is simply the starting position and not the end game” Yong said.

As just articulated, there are three clear stages in moving to open banking and with that comes challenges – the first one kicked off by the roundtable participants was around whether the speed of the open banking implementation date took the industry by surprise. For AMP’s Merrett there were no surprises. “We are part of the Australian Banking Association’s working group. The ABA were quite open in telling us that there were expected timelines, so we were well prepared,” Merrett said. For Westpac’s Mihell, there were no big surprises either, given that there were plenty of “conversations” pre the announcement. “Maybe there was potentially some surprise around the scope that was included as opposed to the actual announcement itself,” Mihell said.

Mihell’s colleague Ringland added that the surprise factor was minimal given that all the recommendations in the Farrell report had pretty much been alluded to in the Treasurer’s Budget speech. However, she acknowledged that getting compliant will be key given recent experiences in the UK – where six banks were not compliant by the UK’s January 30 compliance deadline. Here the banks had to then refocus on doing all the checks with their processes rather than focusing on the “sexy or cool” initiatives in open banking. “We do need to do more than just being compliant, but the reality is our foremost focus is meeting the July 1 deadline next year. It’s a case of kind of getting the large organisation lined up properly so that we get compliant but then also being able to do the other good stuff for our customers,” Ringland said.

Given that it is a smaller bank, AMP does not need to meet the 2019 compliance deadline of the big 4 banks, however, there are broader challenges facing the bank. Says Gonsalves: “I guess one of the challenges we’re facing internally is do we pause existing activity that might enable meeting a 2019 deadline, or do we accelerate to not only meet the basic compliance needs but to develop add-on customer centric capabilities and propositions.” For NAB’s Turnbull, there is a great benefit in being a large organisation when changes are mandated. “Because we are large, we can usually adjust and move resources to get things done very quickly,” Turnbull said.

The issues around legacy technology and data management were also tackled by the roundtable. Westpac has already moved to a hybrid cloud service and platform. Ringland echoed the views of Westpac’s chief information officer Dave Curran who said that the move would help ensure that from a technological perspective the bank was moving in the right direction.

Mihell added that like all banks there is a balance that needs to be struck between allowing the technology teams to focus on areas such as APIs with a robust compliance program. “What I’d hate to see is a compliance program that is built for the July deadline but also misses the chance to source all the data feeds that gives the bank the opportunity to better meet their customer needs. Banks have to make sure that they don’t end up with some technical debt where the opportunities are then undone.”

Data and insights

For AMP’s Gonsalves, the bank is working on a number of initiatives, so is confident that AMP’s strategic investments will ensure better opportunities to manage data and provide better, more integrated customer experiences. “Our intention is to plug in the data feeds and partnerships correctly so that legacy systems won’t be a challenge for us. Hopefully it is a positive story, so we can lean into open banking like some of the newer service providers would want to do,” Gonsalves said. “I think it will take time for the customer solutions to really play out. Our strategy believes that if we build the core elements correctly, like getting the API strategy right and becoming more flexible in our change approach as an organisation, we will benefit from being well positioned in the future banking market” Gonsalves said.

NAB’s Turnbull made an interesting point about the importance of creating value in data. “In some ways, we have more data than we know what to do with. As an industry, I would suggest we are not doing as well as we could with this data” Turnbull said. For Mihell, this theme goes back to earlier comments made about the API now being the product – “We are now moving towards a more open source environment. When Google put maps out there nobody foresaw Uber and I think we will see a shift around that,” Mihell said.

Yong then provided a view on the Chinese maket. “If you look at the Chinese market with WeChat - it’s not just a social media platform, it’s so much more than that. It’s pervasive in terms of payments. It has an Amazon-like solution as well. I can go to a one-stop shop and there is no bank in the middle of all that. It’s all controlled by a digital tech player,” Yong said.

AMP’s Gonsalves said this theme would be particularly relevant for the much younger generations, citing his 10 and 8-year-old as examples. “They are using Amazon coins on their Kindle Fire. They can recognise the value of Amazon coins. So, if you take the 10-year-old generation, in 10 years or 15 years’ time why wouldn’t this generation use something like Amazon coins as their global currency? I don’t think it will be rapid, but I see the opportunity for these large social sites to enter into helping consumers with their so-called-banking. In fact, I believe they have a big role to play in the future of banking,” Gonsalves said.

The potential regulatory impact from the royal commission was another obvious point of discussion particularly amid the backdrop of the data driven banking regulatory environment. Maintaining a customer focus will be key. “Keep the customer front of mind, learn from the UK and start your build on a no regrets basis. I think there’s enough global experiences out there now to get started. You just have to do it in a way that you’re responsive to change as it comes,” Mihell said.

For NAB’s Ganschow, this focus will also be about ensuring customers have a “richer set of insights to help with their broader financial needs”. “We have to anticipate the wants and needs of the customer while also ensuring that our strategies run around what the customer could possibly want, and also run that alongside the compliance program,” Ganschow said.

Issues around sharing data with third-party providers will also need to be considered, particularly as banks move to further collaboration. “We are starting to think about how we will embrace third parties. Most banks receive a large number of home lending customers through third-parties,” Ganschow said. “The battleground is about nurturing third-parties and making sure that the service offerings are the ideal and more preferred one alongside the rest of these providers. It is a model that most retail banking institutions are grappling with. If you extend that forward into a richer set of banking services, it’s a skill set we need to build on. There’s still a long way to go in terms of making that streamlined and operationally efficient and embraced,” Ganschow said.

NAB’s partnership with Xero is a case in point. “In terms of where we have to move, I think it’s more broad, beyond just banking. There is recognition that we’ve got to look at the way we leverage partnerships like Xero to give ourselves a competitive position with customers by helping to solve their problems,” Ganschow said.

For Ringland, again it goes back to the customer, offering the marketing tagline: ‘Helping them in the moments that matter’. As noted by Ganschow earlier, it’s about anticipating customer needs. It’s also about providing a great digital experience for even the non-millennials which in today’s world are often set by the big tech players. “It’s about recognising that their expectation of us as the financial service provider is set by organisations that aren’t necessarily in banking. They are set by the seamless experience of Amazon and they are set by the fact that they can check on their phone or Google. I can see X number of providers in my five-minute radius sort of thing. It’s being conscious of customer expectations being set from outside the industry and taking that learning and applying it to what we do now as retail banking institutions and what we may do in the future to help customers just go about their daily lives in a better way,” Ringland said.

Regulatory pressures of course won’t just be experienced by the banks but potentially also by fintechs. In terms of compliance around data security, the roundtable discussed whether regulation in this area should also be extended to the fintechs. “I think that should be the case, the same protection in terms of customer data, privacy and most importantly their cash,” Ganschow said. “The responsibilities to demonstrate the customer is suitable for a loan should apply to start-ups and IPOs as much as it applies to banks. The rules are there ultimately to protect the customer,” Ganschow said.

Indeed, Westpac’s Mihell echoed views already expressed by the bank CEOs. In terms of the big tech companies, you often hear the CEO saying it’s not the other banks keeping them up at night, it’s the large tech companies. “But fintech is not new. We’ve had the disruption of fintechs coming at us now for quite some time and with open banking, at the end of the day it’s not like all this data is just out there. You still need customer consent, so you still need to be offering an experience that makes that customer want to share their data with you,” Mihell said. This approach to some degree takes the threat away around screen scaping in a non-compliant world. It will also be about partnerships. “The trick now for us is how do we partner in a way that together we create customer opportunities in a far more agile way than we could do ourselves. In this environment the pace of technological change means that you have to partner. You can’t have this mentality anymore of building everything yourself, so I think it’s a great opportunity of fintechs working with banks as opposed to either one working against the other,” Mihell said.

Discussions also explored whether there would have been the same agility and speed associated with banks moving to an open data environment in the absence of a firm compliance requirement. Fiserv’s Odorico asked whether the banks would have done it themselves in lieu of a firm requirement, also suggesting that those banks with the mindset to move first on open banking will reap the rewards earlier than those whose who wait and see.

Adds Yong. “Because not all of the banks are compliant, this really hinders the potential benefits that such a solution or such an administrative reform provides so my interpretation of why the regulators are saying, ‘Banks, we want you to comply quickly and ongoing’ is to essentially address that challenge. A lot of banking reforms that come in the country arguably haven’t had the greatest take-up rate. We have seen the statistics around open banking. The person on the street is not going to be excited about open banking. But what they will be excited about is the change in customer service or product because of open banking.” Ganschow agrees, adding that consumer education will also be key, but she stops short of calling for any formalised open banking education campaign. Mihell acknowledges that promoting consumer awareness around open banking is challenging. “It is difficult to educate a consumer around how to protect their own data rights.” she said.

Engagement will also play an important role particularly as banks stave off any threats around being disenfranchised from their customers. . “The battleground for the mobile app has been all about being in the customer’s wallet anytime any day. It is important we keep that engagement. If we don’t continue to have that direct engagement with the customer, then absolutely our positions can become quite diluted. That’s the concern,” NAB’s Ganschow said.

Ultimately the take up of open banking will be underpinned by providing services that customers actually want to use. “I think it’s an awesome opportunity for theretail banking institutions to just think carefully about what customers want now and what they are going to want in the future. Come 1 July next year, consumers will be in a position to share their data with other banks giving the sector the ability to really deliver for customers and make their lives better,” Ringland said.

Here of course consumer consent around data privacy and sharing will be crucial and the discussions concluded with the importance of trust, a theme highlighted earlier in the roundtable discussions. While banks are confronting challenges around trust, the roundtable participants were optimistic about the future. They acknowledged that bank leaders and staff were working hard to regain and support consumer trust levels. Technology players will have an impact, but NAB’s Turnbull notes, they will only ensure a competitive playing field.

Here RFi Group’s Wilson said that countries like China and India have leapfrogged areas like contactless card payments. However, this was in part because the Chinese consumer’s needs offered by WeChat were not being met by the traditional financial services provider. “My personal view is that this isn’t as relevant in the Australian context. Consumers are pretty happy with what their banks are providing. In order for real disruption to occur it has to be something new and different. I don’t know that Alibaba are going to provide that,” Wilson said.

Compliance will of course underpin the current landscape with all its challengers around technology competitors, disruptors, and regulation. As Yong notes, the Royal Commission has only just started. Regulatory issues will be front-of-mind in the press for several years.

This calls for a better engagement with compliance which goes beyond just ticking the boxes. “That would be very short-sighted,” Yong said. Here partnerships will be key. “In this day and age, you are going to have to partner to not just get you there from a compliance perspective but also to partner in order to bring those innovative propositions,” Yong said.

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