Are we heading towards an Open Banking Nirvana or Armageddon?

10 April 2019

In July this year everyone in Australia will be able to move their bank accounts, mortgages and credit card accounts with the minimum of fuss. They’ll be able to instantly compare and act on deals on offer for online banking, branch banking, mortgages, credit and deposits. At least that’s the theory.

Open Banking aims to put choice back on the table for consumers in an area which has traditionally been the devil’s own job to do.

In the background a technology known as Artificial Intelligence will provide the underlying smarts to spot patterns, mine insights and suggest options to save us all money. It’s a consumer nirvana. Or is it?

An article by James Eyers in the AFR lays out the challenges. He cites a World Economic Forum report released at the annual get together of global financial services industry leaders in Davos. The report — ‘The New Physics of Financial Services’ — paints a picture of inertia and lack of preparedness in the industry. Not in the technology so much as the business models, culture and operating structures in both new and traditional financial institutions.

Everything is ready it would appear apart from the organisations themselves who are expected to deliver and execute the change. And Australia is the Tail-End-Charlie, least prepared for the coming revolution.

Open Banking is typical of any seismic market shift. We went through a similar hiatus with the emergence of mobile technology in the telecoms sector and e-commerce in the retail sector in the ’90s and early 2000s. Traditional industries view such changes with skepticism and suspicion, often unable to think laterally or imagine how and if it will really have an impact on their customer relationships. Indecision is the enemy of innovation. Technology has never been more accessible, cheap and quick to change. Adapting and adopting the technology needed for Open Banking is the easy bit, relatively speaking. The really tricky part is understanding the correct operating models, culture, propositions and collaborations required and the impact from a regulator’s standpoint.

James Eyers points out that the regulator could actually end up making matters worse for the banking sector in Australia, especially given the high-profile impact of the Royal Commission on the finance sector. Is there a pace of change slower than glacial? We might be about to find out!

The threats to success for those banks and financial institutions able to mobilise before the Open Banking epoch is two-fold: the data-holding technology giants Google, Apple, Microsoft, Facebook and Amazon and NeoBanks such as Xinja, Volt, 86 400 and Douugh and Revolut. They have both the raw material and the wherewithal to disrupt traditional markets. The tech giants have the firepower that’s hard to understate: one of them has a technology estate infrastructure 200 times bigger than the other four. Can you work out which one? All dwarf any of the world’s largest financial institutions in their portfolio of tools and smart tech, particularly really smart stuff, Artificial Intelligence and Machine Learning. If anyone of them decided to take on the world’s leading financial services firms in Open Banking it would be a short painful death — for the bank.

The new kids on the block — the Neo banks — present a different threat. They are smart, nimble and highly attuned to customer needs. They are lean, hungry and highly adaptable.

For traditional bankers this duel threat means they need to re-engineer, transform, specialise and collaborate to maintain relevance. Relying on customer inertia is no longer a defensible strategy. They also need to shake off their long-winded, predictable and oh so not agile approach of implementing technology. What is achieved in days in the disrupters takes weeks and often months in banks and financial institutions? Their only hope is to adopt a disrupters mindset and operating model, setting up an ultra-agile approach to both technology development and operating model foundation. Failure to act quickly could easily lead to an Open Banking Armageddon.

Written by Paul Scott, Portfolio Director.

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