Open Banking Series
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As this series progresses, it will become clearer what the impact of Open Banking will be for account holders (bank customers), but technically and in summary:
“Open banking will allow the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. Open banking is becoming a major source of innovation that is poised to reshape the banking industry.”[1]
“Open banking is a financial services term, as part of financial technology, that refers to:
1. The use of open APIs (application programming interface) that enable third-party developers to build applications and services around the financial institution.
2. Greater financial transparency options for account holders ranging from open data to private data.
3. The use of open source technology to achieve the above.
It is linked to shifts in attitudes towards the issue of data ownership illustrated by regulations such as GDPR (general data protection regulations) and concepts such as the open data movement.
The banks turn into financial service platforms, technically implemented through a Banking as a Service-concept.”[2]
Sources: [1] - https://lnkd.in/dY4n2Nh[2] - https://lnkd.in/dXfhUH4Q
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Much like the concept of mobile phone number portability that we saw regulated only a few years ago within the telco-industry, banking regulators are poised to consider the same for bank account numbers.
Within the next few years, it will be very likely that the mobile banking app on you phone will not be provided by your back but rather by some third party developer.
Such third party banking apps will enable you to have accounts from multiple banks together on the one app, e.g.:
-00 ASB transactional account
-25 BNZ savings account
-91 Westpac loan
-CC ANZ credit card
You’ll then be able to transfer funds, almost in real time, between these accounts, in a similar way to how you might transfer funds between your accounts with the same bank now.
You may then decide that another bank offers a transactional account with functionality or pricing that better suit your needs.
Currently, in order change your account to another bank, you need to change your account number, and then advise anyone who might already have your account number that they need to update their records with your new account number.
Account number portability would enable you to change one or more accounts from one banking provider to another, without the need to change account numbers.
Currently one of the biggest hurdles to changing banks however is the account application process and having to provide your new bank with all the information about you or your business, information that you’ve likely already provided to your existing bank.
That then raises the question of data ownership? Do you own the information or data that your existing bank holds about you? We’ll cover that next in part 3.
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The alphabet of regulatory acronyms in the banking world seems endless:
GDRP, GATCA/FATCA (CRS), AML&CTF and KYC relate to client care information.
The FMC Act and CCCFA are NZ specific financial consumer legislation.
APRA, RBNZ, FMA, PRA, FCA, BOE, OCC, TFR, EBA: just a few of the regulatory organisations here and overseas.
For more on these acronyms, scroll to the bottom of this post.
It is the persistently growing oversight by regulatory authorities, and the associated compliance costs, along with penalties for failing to comply, that will see banks change the way they provide banking services, and in a multitude of ways.
It will be increasingly likely that the way you interact with your bank will be via a technology interface (and quite possibly via a third party), and when you do deal directly with people inside your bank they will more likely be compliance focused, rather than relationship or service focused.
What will these changes mean for business operators? We’ll cover that more broadly later in this series, but one aspect that is relevant to cover at this point is that of client data; the information that a financial organisation collects and holds about its clients, and the question of who owns that data. Do you, or should you, have the right to request your financial services provider to share your data with third parties?
“Under open banking, you would be able to authorise apps developed by fintech companies to access your bank account in order to provide services you want such as reporting, budgeting or forecasting. In other words, the debate is ultimately about who owns consumer banking data—you or your bank—and may set the regulatory framework that will guide discussions on data privacy, cybersecurity, and digital identity.”
GDPR, GATCA/FATCA (CRS), AML&CTF and KYC are transnational and global regulatory frameworks that deal with information banks must collect and retain about their clients, and how data they hold about their clients must be managed.
The FMC Act and CCCFA are NZ specific legislation that set minimum standards for how financial institutions must interact with their clients. These requirements include, adequately understanding their clients needs, matching appropriate products and services to those needs, and providing appropriate product disclosure information.
And no longer do banks simply need to show that they have appropriate processes and systems in place, they are now regularly audited by various regulatory organisations and must prove they are adhering to required standards.
APRA, RBNZ, FMA, PRA, FCA, BOE, OCC, TFR, EBA: these are just some of the regulatory organisations here and overseas that have an influence on the way banks and bankers must conduct themselves. Such oversight ranges from individual banker conduct, to prudential supervision of the way financial institutions manage their various risks exposures and financial positions.
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Technically BaaS is separate from Open Banking but both are part of the same movement towards integration of technology into the process of providing and accessing banking services.
“Banking as a Service (or BaaS for short) describes a model in which licensed banks integrate their digital banking services directly into the products of other non-bank businesses.” [1]
“Application programming interfaces (API), open banking and banking as a service (BaaS) are making banking easier than ever, and the old ways of controlling finances and doing business are becoming increasingly obsolete.” [2]
These technologies will not only enable easier assess to banking services from traditional banks, they will also enable non-banks to provide financial services directly to banking consumers.
Non-banks will be able to offer banking services either by utilising a traditional banks offering and embedding into their own services (BaaS) or by cutting out the traditional bank as an intermediary and offering banking products and services themselves directly to consumers (Decentralised Finance).
“Decentralized Finance (DeFi) eliminates intermediaries by allowing people, merchants, and businesses to conduct financial transactions through emerging technology. This is accomplished through peer-to-peer financial networks that use security protocols, connectivity, software, and hardware advancements.”[3]
[1] https://lnkd.in/dPcy56N
[2] https://lnkd.in/dyu8kUWy
[3] https://lnkd.in/ekFymnrm
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Banking is changing and you’ll need to change too, if you want to get the best outcomes from your banking providers.
The way business operators interact with their bank(s) and the way they access banking services is set to change:
⁃ having multiple banking service providers will become far more common place
⁃ traditional banks will become more like quasi
-wholesalers of banking facilities
⁃ increasing regulatory compliance requirements will see banks automate more-and-more of their client interactions and processes
⁃ technology will enable non-banks to more easily compete and/or collaborate with traditional banks
⁃ alternative business financing options will become easier to access (refer our next series*)
⁃ being well prepared, having all the information about you and your business collated and ready to submit will be increasingly important.
Put aside any previous ideas or notions you may have about how banks and bankers should interact with you.
As a result of increasing regulatory oversight, along with emerging and evolving technologies, banks will change, and you’ll need to change too.
Banks are under increasing pressure from regulators to prove that they have appropriately matched the products and services that they’re providing to their client’s needs. There is an increasing onus on banks to collect and retain adequate records and, most importantly, be able to prove that they have understood their clients’ needs and strategies (the onus being on proof).
Technology will increasingly be used by banks to ensure accurate record keeping, and that they are complying with their regulatory requirements. This technology will more-and-more take the form of a direct customer interface – e.g.: it might be that you upload your personal and business information directly via your online banking login.
Similar technology will also be used by non-banks to provide banking-type services and solutions – including alternative forms of business finance*.
It will be increasingly important for businesses to have well developed and defined strategies. They will need to be able to articulate those strategies in a way that banks, or other investors, can clearly understand without necessarily being able to talk directly to a person (e.g.: a Relationship Manager) at their bank.
Open Banking, BaaS, and DeFi will present new opportunities for businesses seeking banking services, but equally regulations are making it harder and more costly for banks to provide more personalised or bespoke solutions.
Those business operators who embrace these changes, and are well prepared, will be best placed to take advantage of new opportunities and to get the best results out of their banking and financing providers. (* refer our next series – Types of Business Finance)