Open Banking/ PSD2 - are customers excited?
Yes, the OB/PSD2 regulation is causing waves in the banking industry. UK and European Banks are frantically working towards ensuring compliance while consultants are queuing up offering compliance 'solutions'. At this stage, UK banks appear to be taking the lead due to Open Banking compliance timelines. While the scope of Open Banking (CMA9) is very limited at the moment, the deadline Jan 13, 2018 is fast approaching (really just 100 days to go!)
In just 100 days, we will be able to use a TPP (Third Party Provider e.g. possibly Money Super Market or uSwitch) to view consolidated bank statements for accounts across different banks or even initiate a transfer (faster payment) from the bank account using such TPP's. But are customers excited?
Many surveys have been done by leading consultancies like Deloitte, Accenture and various other organisations who have found that a very few percentage of customers are likely to adopt OB/PSD2 services. Are you surprised? Well, I am not!
OB/PSD2 proposes to 'disrupt' banking and is expected to bring a fundamental shift in consumer habits. A fundamental shift in a diverse population with differing preferences cannot be achieved overnight! Besides, a product, to be adopted by consumers, needs to carry the correct advertising - either by word of mouth or through other means. So far, while the industry is all gung-ho about this change, there is little awareness with the customers. Leave alone a retail customer, many bank employees themselves are unaware of the benefits OB/PSD2 offers.
This reminds me of May 2008 when Faster Payments was launched in the UK and I was lucky to be working on a project delivering this change for a large UK bank. The entire project team was so excited about the change! There were many use cases being proposed on how it could revolutionise the way business is conducted in UK. Yet, more than 2 years down the line, one of the banks I banked with did not even offer faster payments capabilities to retail customers! Even after 3-4 years many businesses did not recognise the fact that payments could be transferred from a consumer to a merchant/seller of goods and services with a few minutes (15 seconds or worst case 2 hours) and did not have to attract the heavy charges associated to a CHAPS payment.
However, this did change with time as more and more businesses became aware of the new payment type which I believe, to an extent, was also boosted by mobile banking applications. As you can see in the FPS chart, FPS adoption, particularly for SIPs (Single Immediate Payments) was extremely slow and really picked up after 2012.
A domestic payment scheme that offered great benefits of reduced costs of making a payment for consumers; instant receipt of funds for businesses thereby increasing their liquidity still took 5 years to gather pace/momentum. So, how can we expect OB/PSD2 to take off on day 1?
As a retail customer, the only mention of OB/PSD2 I have seen is through a leaflet marked as 'Update to our Terms and Conditions' (T's & C's) sent by my bank with a single paragraph explaining OB. With too many items in the post in form of updates from the banks, what is the chance that all customers would have read the single paragraph mentioning OB/PSD2 and even understood what it really means? With complete ignorance, if I am to be asked whether I would adopt OB/PSD2, you can guess what my response would be - 'Of course not'!
I believe that the initial adoption for OB/PSD2 is likely to be slow. Much of the initial uptake is likely to be for AISP services, particularly being used by credit lending agencies to monitor the financial health of the applicants - be it a personal loan or a mortgage application or even a finance application for buying white goods or TPPs offering switching services or better deals on financial products (eg better current account). The real growth in TPP services is likely to come from e-commerce transactions. Once a large retailer e.g. Tesco, John Lewis, Amazon starts offering OB/PSD2 as a mode of accepting payments along with a little benefit to the customer (e.g. a 0.5% discount), volumes are/adoption is likely to multiply fast. As more customers start using these services and start reaping the benefits, the more likely they are to get used to the convenience and also recommend it to others thereby providing the much needed stimulus for growth of OB/PSD2.