From Compliance to Collaboration – harnessing the opportunity of Open Banking

For a concept once heralded as a revolution in Financial Services, it may come as a surprise to learn that only a quarter of us has heard of ‘Open Banking.’ This is in spite of legislation in support of the service, the Payment Services Directive (2) or PSD2, being in place for over a year, and can perhaps be attributed to a compliance-focused approach to regulation here in the UK.

Other jurisdictions have taken a different approach to Open Banking, with Canada, for example, viewing Open Banking as a strategic opportunity to open up new markets as opposed to a regulatory initiative. Opportunities are great, with £7.2bn in new markets forecast for Open Banking, which will, in turn, increase healthy competition in the market as organisations, no longer able to sit on their data, are forced to provide the best products and services to customers.

At WhartonBC, we believe there are three key factors organisations need to address in order to tap into these opportunities, all of which revolve around changing mindsets and behaviours; both within institutions and for the customers with whom banks hope to build, and maintain relationships.

Power and trust

First, trust. Consumers trust Financial Services less than any other industry, according to Edelman’s consumer trust survey. Open Banking has inherited, if not a poisoned chalice, then a cup tainted by the sins of its banking fathers.

Running hand in hand is the need for a healthy economy, which requires a healthy financial sector, in no small part driven by banks; banks that are at the service of people, supporting growth, employment, and prosperity. With this in mind, the very premise of Open Banking being a ‘force for good’ means that leaders in Financial Services should be at the forefront of building consumer trust and elevating trust in the Financial Services sector – the onus being on banks and building societies to demonstrate through their actions that they are worthy of being trusted. Without trust, across institutions, products and services, there is no way of crossing the chasm between the potential offered by this new entity and making it a reality.

We believe that four personas in leadership are key for a business to succeed, and to earn trust, each of which we address in our accompanying post, ‘Transforming Leadership in the 4th Industrial Revolution’.

We would add that Open Banking also needs to be collaborative – collective leadership reaps better returns. To paraphrase Ralph Waldo Emerson, ‘there is no limit to what we can achieve if it doesn’t matter who gets the credit.’ But, it is crucial for activity to take place with openness and transparency. There’s a clue in the name – Open Banking cannot work when people are working in silos.

Only through adopting these characteristics can leaders in Financial Services generate better confidence from their people and customers. In doing so, this inherent faith, or trust, in their institution will allow them to develop, and successfully deploy, new products and services that can be realised as a result of Open Banking.

Talent

Now, more than ever, it is crucial for Financial Services to prioritise innovation. The backdrop of increasing regulatory restrictions and technological advancements, alongside fierce competition, (75% of fintech firms fear a skills crisis over the next three years) means that Financial Services must have the best possible operating model, staffed and managed by the best people, in order to survive.

We define – and redefine – talent and workforce structures across three main aspects:

• Rethinking skills and capabilities required to execute in the digital world, compared to current employee skill base
• Rethinking sources of talent.  Consider how to flex the shape and size of an organisation with changing demand, sourcing skills from the full talent continuum
• Rethinking managing and leading talent. The journey does not end when talented people are recruited. Support and development are vital. Millennials want jobs to offer clear development opportunities, and Financial Services would do well to take heed of this next generation’s needs and desires, and encouraging an entrepreneurial mindset.

If Financial Services organisations are to survive and thrive in the new digital age and enable the benefits of new products and services to be realised, they must focus on putting in place the right digital talent and capabilities.

Culture

Creating a culture that places consumers at the heart of technology and innovation in the Financial Services sector is central to the success of Open Banking. Whilst the big banks have provided the information and data required to realise the concept, there have been few signs that they have followed through for their customers. In order to realise their aspiration for being a ‘force for good’ banks must talk to each other and identify opportunities where they can reduce the duplication of effort; perhaps they might go so far as to collaborate. After all, using data from a pool of resources will be more meaningful to consumers who will benefit from shared knowledge.

Also, whilst online platforms are favoured for almost all banking needs, most consumers are slow to adopt new services. One barrier to this is security and associated attitudes towards data sharing, but consumers must first understand the benefits of new products. A culture of customer-centricity is key. However, as Open Banking is currently measured on ‘take up’, with no mandate existing to create awareness of Open Banking, it is impossible to tell how exactly to explain the low rate. Millennials are the key innovation trialists – our ‘early adopters’.

Conclusion

While the initial uptake of Open Banking has been lower than expected, opportunities remain. Organisations that provide the best consumer proposition, which allow customers to interact with their ‘ecosystem’, stand the best chance of succeeding. But it’s not only about the technology.

Open Banking enables current players to build on their existing customer base and creates a huge opportunity for established banks. And, new entrants have an opportunity to bring new products and innovations to the Financial Services market, allowing customers to retain more control of their data. This can only be achieved if institutions:

• Rebalance power and create collective leadership – with the character and capability to own the Open Banking ambition
• Redefine talent and bring an Open Talent economy to banking that is agile, adaptable, entrepreneurial and drives the digital agenda
• Create a culture of collaboration and communication to engage the masses.

Only then, and only together, can we adapt to drive a more sustainable, resilient and customer-centric financial system that accelerates innovation and growth in our economy. Only then does Open Banking stand a fighting chance of success.

We conclude with a stark warning, borrowed from McKinsey & Company: banks that are not able to reinvent themselves in order to facilitate it will fail.

If you or your organisation are looking at the impact of Open Banking on your organisation and would like to hear more from WhartonBC on how to address the 3 key organisational factors, please contact Natalie Wharton