Open Banking ‘will bring tech giant entry’ soon

Two thirds (66 per cent) of financial decision-makers think that technology giants such as Google and Amazon will offer retail banking services in five years in the UK.

This is according to research commissioned by Pepper - the mobile bank created by Israeli bank Leumi - which involved in-depth telephone interviews with 50 UK c-suite and director level decision-makers in retail banking.

Just over a third of respondents (34 per cent) believe that traditional banks will effectively cease to exist by 2023, with banking to be split into specific services - payments, money transfers, loans, etc - which tech giants or specialist financial companies will handle exclusively.

The introduction last January of the second Payment Services Directive (PSD2), referred to in the UK as Open Banking, was cited as the one of the biggest reasons that tech giants will jump into the space.

Just under two thirds (64 per cent) of decision-makers said that the new regulations have already given large tech companies a distinct advantage over traditional banks, opening the door for their entry into the retail banking market within five years.

More immediately though, the majority of respondents (58 per cent) thought that Open Banking has had a “negative” impact on their organisation in less than a year. Nearly half (48 per cent) felt that the new regulations have added more red tape and around a third of respondents also believe that Open Banking has caused confusion amongst not only their customers (30 per cent) but also their own employees (28 per cent).

Despite this though, 56 per cent of respondents still think that Open Banking is an opportunity for traditional banks to change and become more customer-centric.

Those surveyed also reckon traditional retail banks are struggling to compete in the digital era. The vast majority (82 per cent) said banks are not innovating fast enough to meet changing consumer demands for digital services, with almost half (48 per cent) stating that these banks are at least three years behind FinTech rivals.

The main reason for feeling that they are behind newer rivals is that there is a reluctance to adopt external technology (65 per cent), followed by a culture that is not innovation focused (57 per cent) and that it takes longer to innovate due to legacy IT systems (53 per cent). A third admitted that innovation is being stunted because retail banks are too focused on product development and streamlining.

Despite this, over half of decision-makers (54 per cent) said that retail banks “must collaborate” with FinTech firms to speed up their own innovation.

Michal Kissos Hertzog, chief executive of Pepper, said that clearly financial decision-makers feel that Open Banking has opened the door to tech giants to jump into the retail banking space, but added “this must not be feared”.

“Open Banking can create a real revolution that benefits traditional banks, not only the huge tech companies,” she continued. “In my view, it won’t end in a ‘winner takes all’ scenario, like in other industries.

Separate research from Centtrip among more than 500 UK decision makers from medium-sized and large companies, revealed that 74 per cent believe they will benefit from Open Banking within two years. A further 64 per cent of businesses agreed Open Banking will save them time, while 58 per cent believed it would also save them money.

However, eight per cent businesses still have no idea what it is. Confusion about the regulatory change seem split by age, with only 28 per cent of respondents aged 55 and over said they had a firm grasp of Open Banking, compared to 85 per cent of those aged between 18 and 34.

Brian Jamieson, chief executive and co-founder of Centtrip, said: “Open Banking has a huge potential to shift the way financial data is shared and managed – a year on from its launch, we are just starting to understand its benefits and the way it may reshape the financial sector.

“Even so, many business leaders have yet to reap its rewards and realise its potential to revolutionise the way businesses approach and manage their financial information,” he continued. “Collaboration between FinTech and banks is the root to its success, as by joining efforts, they can do a lot more than when on their own when it comes to putting it to use.”

Ian Matthews, vice president of sales for the UK and Ireland at NGDATA, commented that Open Banking has definitely opened the door to startup banks stealing customers from more established ones.

“For example budgeting apps like Yolt and Chip may give customers advice and recommend product offers from other providers – risking customer loyalty and retention,” he said.

“However, the big banks are fighting back and using their large revenues to develop or upgrade their services to capitalise on the Open Banking opportunity. They already own the customer relationship, and Open Banking can be the way to maintaining this, through providing an aggregated view of all accounts in their branded app.”

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