By Gareth Vaughan
For open banking to really grab people's attention the focus needs to be on the services it can enable, rather than the technology behind it, says Andrew Dentice.
In the latest episode of interest.co.nz's Of Interest podcast, Dentice, a technology lawyer and partner at HudsonGavinMartin, discusses the data sharing that enables open banking, what open banking actually is, why progress towards it has been slow in New Zealand, what's going on with open banking overseas, the threat and opportunity of open banking for banks, the benefits of it for consumers, open banking's marketing problem, and more.
One of the points he makes is consumers need to be put at the heart of it.
"If you're talking about APIs [application programming interfaces] and bank account information, it's not exactly the most sexy conversation to be having," Dentice says. "We have to put the consumer front and centre, have a look at some of these really amazing use cases that are starting to come out, and get people excited about it. And then that drives the [banking] industry to do more as well."
"I think you've almost got to separate the open banking technology itself from the stuff that it enables," says Dentice.
"That technology itself is actually not that exciting as a consumer. APIs have been around for years. As a consumer, I don't really see that. What I see is the cool new app, the Sharesies, the Monzo, the Wise in market, that when I go and use it gives me a really fantastic, brand new experience."
"We're never going to get people excited with the underlying tech around open banking. We're going to get them excited around the use cases that it's driving. So it's kind of an enablement layer rather than new technology in itself," Dentice says.
Asked what the banking experience might look like for consumers in five to 10 years time if open banking really takes off in NZ, Dentice says better, more competitive, more interesting product offerings would be a great outcome.
"I would hope that there's a range of new, great, innovative New Zealand fintechs that are able to drive their business models off the back of this. I'd also hope that the great companies from overseas see New Zealand as a market that they want to enter. There's some larger [overseas] fintechs like Revolut and others coming into the market. I think if we have that open banking framework all up and running, then it makes New Zealand a much more likely place [where] the big players will come in and offer more competition."
He also thinks service from incumbent banks could be better and more competitive.
"I saw recently HSBC basically launched a competitor to Wise in that FX [foreign exchange] space. So there's the fintechs kind of coming in cutting [banks'] lunch, and then the banks' trying to cut the lunch back."
"And then I think digital first financial services means that people just have a better understanding of their money, their financial position. Financial literacy is really important. There's some great fintechs who are doing things with kids in that space, like SquareOne and Banqer."
"So there's a societal benefit to it, as well as a pure kind of competition and innovation benefit as well," Dentice says.
*You can find all episodes of the Of Interest podcast here.
16 Comments
So if I'm financially literate, and don't mind a separate app for things like 'Wise', seems it does nothing for me.
The piece around enabling banks to fight back against fintechs presents as a negative to me, played out over time, the banks continue to eat everything, and we are back in the same place, but with new overhead.
Can anyone clearly finish this sentence with something meaningful?
"Because of open banking, in the future you will be able to...."
... retire the clunky direct debit system.
E.g., pay a subscription or recurring payment (1) without having to sign up to a direct debit, and (2) never pay a late or missed payment fee again, because the tech is there to check the balance first before the transaction is attempted (whereas direct debit just blindly tries to make money out of a bank account, even if the account is closed or overdrawn, leading to failed payment penalties.)
(a use case I'm working on ATM).
So if I'm financially literate, and don't mind a separate app for things like 'Wise', seems it does nothing for me.
What have you just described is a psychographic profile. I want to fit that profile too. Wise was a solution to a problem that tradfi didn't really want to solve as it affects their power and profitability.
... Switch backs without any significant administrative overhead.
In the UK, you switch banks and all your payments are automatically transferred. This leads to genuine competition between banks, you may get an incentive of several hundred pounds to switch your current account and this easily overrides the minor admin involved.
Think of making the banking market more like power providers, where many companies are competing for your business on price, service and with various incentives offered to switch. And knowing that when you ask to switch, all the background work will be dealt with by the companies, seamlessly (at least in my experience).
Because of open banking, in the future you will be able to move your banking details to a new provider immediately, including your mortgage. You'll be able to build a personal finance app that links directly to your spending and doesn't just monitor what's going on but can actively assist you in your financial management. You'll be able to choose between a variety of providers for a variety of services, just like a real service industry would have, instead of being ring fenced in to one provider.
There are plenty of reasons to introduce open banking and almost all of them are good for customers.
Because of open banking, in the future you will be able to....sync your transactions immediately and continuously into the budgeting tool of your choice, e.g. buxfer, without having to give them you internet banking password, or tediously do a manual export and upload of statements for each of your accounts and cards.
"For open banking to really grab people's attention the focus needs to be on the services it can enable, rather than the technology behind it, says Andrew Dentice."
Andrew is 110% correct. First rule systems architect, identify what the end state must look like to be a success. Then, and only then, start talking about technologies and finally, choose the technology ... and keep it simple.
Open banking is talking about raising the quality of the conversation in the banking industry pretty much across the board - done well. As the above posts point out, this this is not a conversation the big 4 banks want to engage in. No guesses for knowing why not. We know why not.
I have watched Open Banking initiatives go almost no where within banks.
Most people in NZ have monogamous banking relationships, perhaps with a bit on th side.
Fintech's often seek to intermediate banking services via open banking, naturally banks are negative on enabling this. They have dragged heals as it has not been pushed via new law.
Personally I think we could achieve more in the short term via a secondary mortgage market, via Freddy Mac etc, but there have been some great moves in open banking and low capital banking licenses in the UK. Its really to late for NZ Fintechs now, as the offshore companies will come in, with tech ready to go.
Competition could be enabled here if smaller providers could access capital (via selling a mortgage). we could also enforce debt to income etc in this process.
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