Banking Opening Up - Opportunity or Risk?
- Peter Johnson
- Dec 14, 2023
- 2 min read
By 2025, open banking is expected to revolutionize the banking industry in Canada. Consumers will be able to give permission for their personal data to be shared across different financial institutions, opening up a world of choice, safety, and innovation. Traditional banks, meanwhile, are making changes to their business strategies, products, price tags, and services in a bid to stay on top.
For the past 10 years, financial institutions have been aggressively deploying Agile processes, running incubators, and buying out Startups in order to remain ahead of the competition from the up-and-coming FinTechs. Despite the value of Agile practices, I believe that the impact of open banking on banks will ultimately be seen over a longer period of time, and reveal itself in indirect consequences such as customer loyalty and the control of consumer data.
The results of a survey done in the US by Bankrate revealed that customers typically keep their checking and savings accounts at the same financial institution for about 17 years. Reasons for this loyalty included fees (24%), long account history (17%), good customer service (14%), and the perceived difficulty of switching banks (10%). The idea that banks have that a customer inquiry is a surefire way to establish a long-term relationship may need to be reconsidered. Fintech firms, which offer no-fee accounts, target select markets, supply better customer service, and make it effortless for customers to switch banks using open banking, are making it more difficult for banks to obtain and retain customers.
Until now, banks have been the only ones with access to customer financial data. The emergence of Open Banking is not giving rise to FinTech competition, but rather acting as an accelerator. FinTechs are already processing a large amount of data, mainly from customer payments, and this is estimated to reach $5 trillion by 2023. As companies such as Apple Pay expand from handling payments to becoming banks, FinTechs becoming integral payment gateways and customers having a greater say in their data use, the lifetime value of customers is likely to decrease, thus diminishing the banks' dominance over financial data. Open banking is likely to cause a tumultuous transformation in the financial landscape, intensifying the competition and bringing about a shift in industry dynamics.
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