Over a year on from the launch of Open Banking, and following last year’s IT catastrophes at Visa and TSB, it is no surprise that many in our industry are considering how effectively the big banks are reacting to this era of transformative technological upheaval.
It is estimated that the five biggest UK banks hold an 80 per cent share of the UK market, but Open Banking could put this in jeopardy.
Indeed, a survey by Bain & Co, Salesforce, and MaritzCX found that 63 per cent of banking customers would consider sharing their financial information to find a better deal.
Open Banking was introduced with the promise that customer data (which traditional banks have closely guarded) can now be shared with other financial services providers to benefit consumers.
It should now be easier for customers to see if they can get a better deal from other providers, and if they can, the process for switching should be simpler than ever before.
This clearly poses a problem for traditional banks, many of which have intentionally made the switching process unnecessarily complicated. Now that the customer can easily see where they can get better deals and switch providers more effortlessly, does this spell the end of the big five’s monopoly?
Not necessarily. While technology has been a major disruptor to established players in other sectors such as retail or entertainment, the high street banks have so far been able to co-exist with the emerging wave of fintech startups and challenger banks.
They have done so by being quick to invest heavily in online banking infrastructure. Primarily, this has been done out of necessity – improving customer experience at a time when transparency and ease of use is essential.
But clearly it has also been in reaction to the threat of these new digital challengers, many of which are growing in popularity on the promise of democratising and demystifying finance.
So what’s next for the banks? Big data has been the catalyst in this technological revolution, and the fintech challengers have taken full advantage of it.
This information enables firms to analyse huge quantities of data and spot patterns of behaviour, which has helped these companies disrupt the market and carve out a place in the minds of customers – particularly millennials.
So if the traditional banks want to maintain their prominence and customer base, they too must focus on utilising big data in more innovative ways.
Some of them are starting to make headway, largely through collaboration and by working closely with startups.
It’s difficult to imagine a future in which banking, like so much else, isn’t dominated by digitisation and data. But the pressure is on for the big banks to embrace change quickly, or risk being left behind.