Challenges and Opportunities for Identity in Open Banking

24 March 2020

Open Banking should offer customers greater insights into their money – but what does it mean for financial services providers? 

Intended to encourage competition in the financial services sector, the UK’s nine largest banks are now required to allow access to accounts-transaction data with licensed start-ups. Access must be agreed by the account holder and provided by secure APIs, creating challenges and opportunities for industry disruptors.

Challenge – Meeting licensing criteria

One of the biggest barriers to Open Banking adoption is the licensing criteria. The Open Banking Directory, a central repository of approved service providers, is bound by very strict membership rules.  To register as an Account Information Service Provider (AISP), your firm will need to prove that it has the necessary security provisions in place to protect customer data. You will also need to ensure that you can authenticate users – in your own service and when accessing third party Open Banking APIs.

Challenge – Data can be accessed by others

Open Banking allows data to flow both ways. Users can consolidate financial data from multiple providers within your app – but they can also pull your data into a system belonging to one of your competitors.  In this way, Open Banking exposes you to increased competition – which is exactly what it is supposed to do. To prevent customer defections you will need to improve the user experience, ensuring that your app and every inter-service authentication is as smooth as possible.

Opportunity – More chances to up-sell and cross-sell

Joining the Open Banking group increases the depth and quality of customer data that your business can access. Your data analysts will be able to work with rich, contextual information to better understand individual customers and their preferences.  These insights will allow your business to take more informed strategic decisions about product and service design. You will also be better able to target existing customers with offers that align to their interests and needs.

Opportunity – Improved customer experience

Identity authentication technologies are critical to linking disparate systems, from your own legacy systems in-house, to Open Banking APIs. The smoother the process, the more likely customers are to use your app.  Encouraging customers to keep engaging with your app is vital. A great experience will keep them coming back for more – which is increasingly important as customer loyalty steadily declines.

Opportunity – Deeper industry insights

Profitability relies on defining the commonalities that exist between your clients and building core services that meet those needs. Using the Open Banking APIs – and your customers’ permission – you can begin aggregating data to build generalised insights.  With more information available you can make the strategic decisions that will help your firm grow – and meet the future demands of your customers too.

Preparing for the future

Where the UK and Europe have led, other countries will follow. Australia and Nigeria are already taking steps towards rolling out similar programs.  By making use of Open Banking APIs now, early adopters will be ready to enter new markets as soon as they become available. This provides an immediate advantage and smooths the way for businesses to become established players in international markets more quickly.  To learn more about building identity mechanisms for use with Open Banking, please get in touch.