Editor’s Note: We’re excited to have David G.W Birch contributing to the blog on the state of play with Open Banking and PSD2. David is an internationally-recognised thought leader in digital identity and digital money. He’s been named one of the global top 15 favourite sources of business information (Wired magazine), and one of the top ten most influential voices in banking (Financial Brand).
Guest Perspective: “Open Banking will Change More Than Banking”
As the United Kingdom enters the new era of Open Banking, we are all familiar with the opportunities for new financial services providers to use the new infrastructure to provide new products and services. As Ken Wattana pointed out, open banking depends on having identity services as part of that infrastructure. Third parties using bank APIs to obtain customer data and to instruct payments on their behalf must have confidence in that infrastructure, just as customers must. One way to do this is to use standard, tried and tested approaches and to have good reference implementations for thorough testing. In the U.K., for example, the Open Banking Implementation Entity (OBIE, the body funded by the banks to deliver open banking) chose ForgeRock to build the reference banking application that will be used by the banks and the third parties to build and test their applications.
It’s important to note, though, that the opportunities for third parties extend way beyond financial services. To pick just one example, open banking is going to have an impact in the retail sector. Why? Well it enables retailers to use customer account data and account-to-account “instant payments” to make their businesses more efficient and more effective. A recent Consult Hyperion survey found that more than 90% of merchants want to use PSD2 to reduce card fees and also that three-quarters of them want to use it to reduce the impact of fraud and data breaches. Last year, an Accenture survey determined that half of the retailers they surveyed want to use customers’ bank account data to provide special offers and customised services at point of sale.
With the Amazon Go store recently opening to the public, it’s easy to imagine how open banking could transform the retail experience. I’d be very happy to go self-scanning around the supermarket, hanging up the scanner at the end and seeing the retailer's app pop up on my phone with the total, prompting me to use a PIN, or fingerprint, or my face to confirm: at which point the retailer instructs an instant payment from my account to their account! As a customer, the instant payment proposition seems just as familiar as a debit proposition: the customer walks out of the retailer and the money walks out of the customers account. The fact that it never goes near the existing payment rails isn’t something a customer knows nor cares about.
The retailers themselves, especially the millions of small retailers, will also benefit from this transition because a variety of new products and services will spring up to help them to manage their bank accounts, funding requirements and general financial services needs. I’m no expert on small business financing, but the ability to see the details of a retailer’s bank account will surely lead to new opportunities for specialist financial services providers.
This is also a great opportunity for new players (e.g. Google, Apple, Facebook and so on) to join the ecosystem. While the existing rails may be bypassed, open banking also provides an opportunity for the schemes to reinvent themselves and their propositions. Not only is the UK about to become an interesting, exciting and unpredictable open banking laboratory, but Mastercard’s purchase of VocaLink will be an experiment in the reinvention and extension of their proposition. A payment scheme isn’t just a data switch that connects consumers, banks, merchants and retailers (if it was, there wouldn’t be any because we’d use the internet instead). Rates, rules and rights are fields in which Visa, Mastercard, Amex, Discover et al have decades of experience to leverage through both their existing relationships and the new ones that will arise. Helping retailers to recognise customers, manage their relationships with them and provide reputations that are useful to others (the “3Rs” approach to identity in commerce) will be a key role for the financial service players, the internet giants and other new players. It goes without saying that I expect ForgeRock to support all of them in this process.