Open Banking regulations are coming into force in jurisdictions around the world, including in the last couple of weeks in Australia, it’s important that Australian bankers understand what it means for them.
Is it really going to challenge incumbents the way some say, and make certain business models obsolete? What do people mean when they refer to the ‘API economy’, PSD2 and GDPR? And what are ‘RESTful APIs’ anyway?
Most importantly, why should such things matter for bankers who don’t work in payments or technology and perhaps find the language of Open Banking inaccessible and intimidating?
In PWC’s report, they seek to demystify the Open Banking dilemma. Open Banking is more than just a new set of compliance requirements, and it will require much more than just new technology. It will affect almost everyone working in banking today, and every banker has a role to play in its evolution in Australia. Most importantly, while we don’t subscribe to the view that banking will evolve overnight, it is believed that it will have major implications for every part of the industry, and that organisations have a list of things to start doing today.
What is the upside to implementing Open Banking?
As long as it is done securely, unbundling bank services and data in this way will provide greater competition, improve efficiency and lead to enhanced or entirely new products and services. Open Banking will have effects on the way financial services are delivered and the long-term viability of different business models.
What are the regulations around Open Banking?
There is now a new and real short-term regulatory requirement which cannot be ignored: Second Payments System Directive (PSD2), General Data Protection Regulation (GDPR) and possible Australian equivalents. Fortunately, at least for the majors, readiness for PSD2, GDPR as well as earlier initiatives such as Comprehensive Credit Reporting (CCR) are useful precursors for the yet-to-be-defined changes following the Treasury’s Review into Open Banking (the Farrell Report). For executive teams and boards, they were also useful ‘fitness tests’ of the readiness of the organisation to accommodate new data governance and access requirements.The bad news is that the timelines discussed in Farrell are much shorter than what was available in other comparable changes to the regulatory regime.
Where do you start?
While it is not cause for alarm, a ‘wait and see’ approach to Open Banking anchored on merely complying with requirements is not wise either. The evolution of the banking ecosystem will take time, but so will each banks’ ability to respond. Lesson from UK and European experiences in preparing for PSD2 and GDPR is that waiting until the last minute only increases the cost, risk and disruption of the change. Such a strategy is also prime for disruption by competitors who have started preparing for and understanding the new environment sooner. Fortunately, there is a sensible path between these two extremes.
What the PWC report calls a ‘Walk-Run-Fly’ approach, where actions are more aggressive than what regulations require, but where these actions are also grounded in a decent assessment of the technical, social and commercial objective to be addressed by incumbent banks every day.
Learn platform strategy & open business models that meet increasing consumer demands from experts in the field in the field like Chris Michael. CTO of the open banking entity in the UK. This case study packed agenda will help you stay ahead of the competition. Don’t miss Chris at the Open Banking Forum, on the 26th and 27th of March 2019 in Sydney.