By Samantha Seaton, CEO of Moneyhub
The Open Banking reforms, which were introduced back in January, have the potential to fundamentally reset how businesses engage with their finances and customers alike. The reforms will make interaction with the financial services industry more personalised and responsive, as well as opening up new channels for businesses to develop and enhance their customer proposition.
Part of the EU’s new Payments Service Directive 2 (PSD2), the Open Banking reforms mean that all banks and credit card providers across Europe must ‘open up’ their payment facilities and account information to other financial services providers. In one move, control of data is shifted to the individual who can then benefit from opting in to access innovative third-party applications within a highly regulated environment.
More robust regulation
Under the Open Banking initiative, the FCA is placed front and centre of the regulatory framework. This significantly raises the bar for those that want to access financial data. Not only are businesses now required have to get authorised by the FCA, they must also hold the right level of insurance, fully protecting the customer at all times.
The regulations create a new category of regulated provider – the third-party provider (TPP) of which there are two types. The first is Payment Initiation Service Provider (PISP) i.e. a company that will be able to initiate payments, and the second an Account Information Services Provider (AISP) which uses access to the data to facilitate other services. Both require authorisation by the Financial Conduct Authority (FCA) in the UK and consent from the customer to make the payment or use the data.
The reforms empower customers, enabling them to be very specific around the data that they are looking to share, and give approval for the details of just one account. Importantly, not only are customers able to revoke access to their data at any time, businesses who are granted this access must seek re-authorisation from the individual every ninety days. This brings greater transparency alongside a greater level of security.
Enhanced financial control
For businesses themselves, it is now much easier to share financial data with regulated, secure third-party applications. This means that to day-to-day financial management of the business can be greatly enhanced.
A business is able to automate everything from utility switching, to invoice payment, to identifying where savings can be made, then enabling real time switching to higher interest products. Overtime, it will deliver efficiency and productivity savings while ensuring banks have to prioritise the needs of their customers in their product development.
Building customer loyalty and unlocking frictionless advertising
One of the most fascinating avenues of opportunity, is around the hyper-personalisation of consumer targeting and interaction.
Once granted access to the data, businesses will be able to harness the customer insight to build greater customer loyalty. By better understanding consumers’ habits, businesses will be able to offer hyper-personalised incentives, making the experience unique. For example, a supermarket may realise that a customer is shopping with them in the week, but going to a rival at the weekend. They could then offer specific offers and discounts to them to help change behaviour.
This level of detail also means that businesses will be able to transform their digital advertising strategy to be much more targeted, rather than wasting valuable budget on a scatter-gun approach. Rather than relying on broad social media categorizations, mosaic data, or digital cookies, businesses will be able to clearly identify consumers’ spending habits and choices, thereby focusing specifically on their target demographic.
What’s important to note is that businesses themselves don’t need to take on the responsibility of holding or analysing the financial data. By partnering with an FCA regulated third-party such as Moneyhub, they can outsource the tracking and analysis of customers’ habits. Once the consumer has granted access to this trusted provider, the business can then receive updates.
Businesses should view Open Banking as an opportunity to gain savings and power growth, particularly if they have a direct to consumer offering. As they look to harness the potential of Open Banking, consumers will become more familiar with the benefits of opting in to share their data. But first, businesses need to clearly demonstrate the tangible impact of users receiving more personalised and predictive products and services. But if they get it right, the world is their oyster.