Out-Law Analysis | 01 Mar 2018 | 4:21 pm | 3 min. read
For banks, one of the consequences of the Open Banking agenda is that, like it or not, there will be new players in the market who sit between them and their customers. Now that the debate has moved on from 'banks vs. fintechs' into a more realistic discussion of the opportunities around banks and fintechs collaborating, the new question is how will that impact on the business of selling banking products to customers?
Many commentators argue that Open Banking will change the market for banking products and services by dismantling the traditional dominance of the banks and instead make the product rule – in other words, killer products will beat customer loyalty. Open Banking helps to facilitate this by reducing the frictions associated with using anyone other than your own bank – open APIs create the rails for this.
As part of the Open Banking agenda we have been discussing the need for greater collaboration between banks and fintechs – each has something to contribute to the other: in short, banks bring brand, experience of regulation and customer trust, whereas fintechs bring agility, speed to market and fresh ideas. Related to this is the fact that fintechs engaging with bank customers introduces a new model for the sale of banking products: rather than banks selling to them direct and owning the vertical supply chain, fintechs are getting in between and breaking the link.
Banks need to decide whether they want to maximise selling opportunities by opening themselves up to new distribution models, beyond the minimum they need to do in order to comply with PSD2 and the CMA requirements.
To do that, banks, need to consider how best to sell via a distribution model. They need to consider both the fintech as a distributor and the end-customers. Banks need to think about what they need from fintechs to ensure that their products and services are being effectively distributed to customers in a way that isn't damaging the bank's brand.
To maximise the chances of success in this new world, banks need to:
Because fintechs won't get everything their own way in this new world, there are things fintechs need to act on too:
Open Banking ushers in a brave new world and opportunities for both banks and fintechs. The market for banking products and services will become more fragmented, with new players in the chain between customer and bank. That means that new relationships akin to distribution will become important. Banks have powerful brands and customer trust and so fintechs will want to partner with them. Successful partnerships will be about maximising the best of both worlds.
Yvonne Dunn is a specialist in financial services and technology law at Pinsent Masons, the law firm behind Out-Law.com.