Every problem has an opportunity: while challenger banks are thriving, incumbents are sourcing open banking capabilities to catch up. In the Banking Automation Bulletin, VP of Strategy Tim Rutten shares his thoughts on how incumbents can develop the best

1. Issue 228 | September 2004Issue 228 | September 2004Issue 392 | January 2020
B a n k i n g A u t o m a t i o n B U L L E T I N
Automated ATM deposit set
to pass key landmark
Online selection drives growth in
e-commerce card expenditure
Challenger banks make inroads in Ireland
Fintechs and open banking offer
opportunities for growth
Debit card overtakes cash as first-choice
payment method in the USA
Country profile:
UAE
Published by RBR since 1979
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2. 8 | January 2020 | Banking Automation B U L L E T I N
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By Alison Ebbage, Freelance journalist
In terms of infrastructure, open banking lies
ready and waiting. Take up, however, is slow.
Incumbents, challengers and new opportunists
alike are all eyeing the market and waiting for
a proposition that offers enough value to get
consumers to sit up and take notice.
Anton Zujev, business development and sales
director at Fininbox, a cloud‑based IT provider,
comments, “Adoption of open banking is really
variable, but the technology is there. It is stable and
functioning. But it’s a huge leap into a new market
paradigm, and that‘s what is holding things back.”
In the UK, the industry and the regulator are
certainly not holding things back. We already
have detailed technical standards for both banks
and payments services providers. The data is
accessible and the formats are such that the data
can be easily exchanged. Sustainable use cases,
too, are coming to the fore, such as comparison
services, know‑your‑customer, auto savings and
credit scoring to name a few.
As these use cases are commercialised into
functional solutions, the lure of open banking will
grow.
John Hallisworth, open banking partner at
KMPG, comments, “Open banking itself is just
an infrastructure, but it is an enabler of so much,
potentially. It is a fast‑paced environment with an
ongoing FCA consultation, a smart data review
ongoing, and a very active topic of conversation
within the industry itself.”
Open banking offers opportunities
Opportunities abound. For incumbent banks
the game is theirs to lose; they already have the
customer base, and their challenge is to keep up
with the technology and adapt their legacy systems
to best position themselves. For many, the focus
is on becoming the front‑end provider of open
banking by acting as the platform. Becoming
an ecosystem orchestrator means they can
further embed themselves into the lives of their
customers and thus become indispensable.
Mr Zujev comments, “Big banks are already onto
this and know that they are in something of an arms
race; they want to be the app that can give their
customers what they need, be that the consolidated
view of accounts or third party products and
services.”
Many incumbent banks also have their own
speedboat versions of new challenger banks and
are already working with fintechs to develop the
optimum proposition. RBS, for one, recently
launched its own digital bank Bó in a bid to take on
Monzo, Revolut and Starling.
Tim Rutten, VP of strategy at Backbase, a white
label digital banking platform, says, “It is an
interesting battlefield and one that probably needs
promoting a bit more than is currently happening.
Where big banks have the regulatory side dealt with
As use cases are
commercialised
into functional
solutions, the lure
of open banking
will grow
For incumbent
banks the game is
theirs to lose
Open Banking
Open banking prepares
for take-off
that have yet to gain any significant popularity.
For instance, some research shows Americans
are wary of new payment options. A report from
The Pew Charitable Trust entitled Are Americans
embracing mobile payments? found that many
Americans are distrustful of mobile payments and
suggests that this payment method may stagnate
in the coming years. Be that as it may, Americans
will most likely continue to weigh their options.
Traditional payment methods such as cash,
however, are still in the mix, with people choosing
to employ them in specific buying contexts.

3. Banking Automation B U L L E T I N | January 2020 | 9
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The main issue for
challengers will
be to convince
people that they
are to be trusted
with data
One area
that could be
attractive to
customers is
aggregation
and also have the digital capabilities, then the use
cases are starting to be rolled out. ABN and Allied
Irish Bank are two good examples.”
The challengers, meanwhile, are up for the fight
to acquire and keep customers and are using open
banking as an ideal battleground.
According to a report by Fujitsu, Technology
and the new banking customer 2019, by 2024
35% of people will bank with a combination of
challenger and traditional banks. The main issue
for challengers will be to convince people that
they are to be trusted with data. 46% cited this as
an issue.
Trust aside, challengers also need a profitable
business model, and it is here that open banking
can help. Mr Hallisworth states, “Challengers are
growing their customer base and have realised that
the current account is the lynchpin for doing so. But
the current account is also not a profitable area and
so they need to broaden their scope in order to be
commercially viable and sustainable.”
Open banking could provide the medium to do
so since the provision of third party products and
services would add value for customers as well as
revenue for the challenger banks.
Mr Hallisworth also points to other disruptors,
which include the Marcus initiative by Goldman
Sachs – a savings proposition and essentially
a means for them to attract retail deposits to
support the investment bank. “This is not a
retail business case but that could change in a
margin‑pressed environment if they choose to
expand outwards to offer credits cards or other
revenue streams,” he says.
Apple Pay is another good case in point of a
disruptor; this is essentially a tokenised payments
system that sits on the phone. “They have their
brand right at the front of that and could easily
leverage it to extend their offering to include other
products and services, such as credit cards or
lifestyle apps,” Mr Hallisworth adds.
Demand exists for the right services
But even if the quest to attract and retain
customers is going to be at least partially played
out over open banking, is the demand from
customers actually there yet? Concerns over
data privacy and security currently seem to
outweigh the desire to access large open banking
ecosystems.
The Fujitsu report says that two fifths of the public
are worried about their bank sharing data with
third party providers (40%). Perhaps as a result,
only 3% of customers report benefitting from
open banking to date.
One area that could be attractive to customers,
however, is aggregation. If customers are likely to
bank with more than one provider in the future,
then being able to have a single view of all their
accounts and see that from a number of angles
such as savings, investments, pensions and the like,
could have strong appeal.
Mr Zujev comments, “There is scope for offering
a consolidated view across a customer‘s various
accounts. This could be especially beneficial to
consumers and small to medium enterprises – the
ability to quickly understand their financial position,
explore alternatives and make better financial
decisions would be valuable.”
Swedish bank SBAB has an app that provides this
sort of service. Its Mortgage Match service uses
account aggregation technology to collect a user’s
existing mortgage information from their bank
and compare with a rate from SBAB. By using
aggregated data from the user, the aim is to create
a well‑informed and competitive offer to hopefully
convince more people to switch their mortgages.
It also has a customer‑facing app that helps people
see and manage their finances clearly. Users can
connect the app with their bank accounts to pay
bills and transfer money between accounts at any
bank directly, without leaving the app. This has
over 500,000 users to date.
Payments initiation is another area where
customers could see a benefit from open
banking. This would involve apps for conducting
e‑commerce, which customers can download via
their bank. Instead of manually entering details on
a website, the customer would instead enter his
or her bank, and the app would find their details
from there. It would remove the need for card
payments online because there would be one
single agreement with the payments initiation
service. This could be quite a neat, user‑friendly
and seamless payment method for time‑pressed
customers.
Curve is a good example of this. It aggregates
multiple payment cards onto its app so that the
user can make payments and withdrawals from a

4. 10 | January 2020 | Banking Automation B U L L E T I N
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single card. It lets the user switch between bank
cards after each transaction.
Use cases like this will become commonplace
because they solve an actual problem faced
by customers. And once the public becomes
comfortable with one use case, others will follow.
Mr Rutten comments, “The aggregation play is a
strong one. If a bank can provide something that is
user‑friendly and solves a problem for the customer,
then they will keep coming back for more. There is a
huge space for personalisation and advice that could
successfully stem from an initial concept of simple
account aggregation.”
And Mr Hallisworth states, “As open banking
extends to offer other services such as debt and
credit, the expectation is that the opportunity to
add value will also extend. In particular there are
huge issues on a society level about whether people
are saving enough and providing for their retirement.
An aggregation facility to see all holdings in one
place would certainly add value. As the scope
extends, the concept would become normalised.”
The hope is that over time this will happen. The
infrastructure is in place to act as an enabler to
an open banking ecosystem. Once a tipping
point is reached and customers embrace the
concept, then the race will be on to find the apps
and fintechs that can provide the added value
propositions which can capture the imagination of
customers and thus ensure the banks keep their
customers.
Mr Rutten says, “There will emerge a few really
strong use cases that will win over customers and
thus serve to normalise the concept of open banking.
Once those few value propositions emerge, it will
become clear just where open banking can make a
real difference and where it does not really provide
any value.”
And Mr Hallisworth concludes, “Open banking
is still in its infancy but will almost certainly get
bigger and better with an extended scope. Once
it becomes normalised and broadly accepted and
desired by customers, I would expect to see the
concept extend to other areas too.”
There was
general consensus
that the UK was
now eighteen
months ahead
of its European
neighbours
Once the
public becomes
comfortable with
one use case,
others will follow
On the 3rd
and 4th
December, FinTech Connect
returned to London for its fifth year. Neobanks,
incumbents, fintechs and merchants all converged
on the ExCel for the two‑day event which
featured four specific streams covering the themes
of PayTech, RegTech, blockchain and digital
transformation. The relationship between the
incumbent banks and their fintech challengers
was, not surprisingly, under the spotlight as the
industry discussed how it could respond to shifting
consumer demands and changing regulations.
UK open banking regulations promote
change
Discussion around the opportunities and
challenges presented by open banking took
place in many of the sessions as the conference
attendees sought to take stock of what progress
has been made so far. With the UK open banking
regulations driven by PSD2 having come into
effect in January this year, there was general
consensus that the UK was now eighteen months
ahead of its European neighbours. UK‑regulated
banks are now required to provide secure
application programming interfaces (APIs) to allow
third‑party providers (TPPs) to connect to their
systems. With customers able to easily share their
financial data, such as spending habits and regular
payments with authorised providers, speakers
sought to define the impact of these changes on
the financial landscape.
Fintech
Fintechs and open banking
offer opportunities for growth