Open Banking will revolutionise consumer-bank relationships - Pinsent Masons

New EU and UK legislation could revolutionise the way consumers share personal financial data, compare products and manage their money, say lawyers Pinsent Masons.

The legal firm believes “Open Banking” could be the most exciting development in banking in years but say collaboration between banks, fintechs, payment providers and retailers, is essential to engage consumers and fully realise new opportunities.

Fintech expert and legal director at Pinsent Masons, Luke Scanlon, said: “The clue is in the name and banking products and services will be opened up to new providers. Open Banking has the potential to revolutionise how consumers engage with financial products and services and completely transform the payments landscape for banks, fintechs and retailers.”

The key EU reform in early 2018 which will help move the market forward is the adoption of the revised ‘Payment Services Directive 2’ (PSD2). Under PSD2, banks and other payment service providers can be requested by customers to provide access to payment account information to approved Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs). Only in select cases, such as where banks suspect a fraud risk, for example, can that access be denied.

Mr Scanlon added: “In the UK, parallel requirements set by the Competition and Markets Authority (CMA) also mandates change which is designed to improve competition in the market. It’s seen as a chance for innovators to disrupt existing markets dominated by the banks, but also for banks to revolutionise the services they offer and strengthen the way they engage with customers.”

New research commissioned by Pinsent Masons suggests that incentivisation of consumers is essential to build market share. If properly incentivised more consumers would be encouraged to initiate a payment through a PISP instead of a debit or credit card when shopping online.

According to the survey, 52 per cent of British adults aged 34 or under would be encouraged to use a PISP over a debit or credit card if given a discount on an item they were purchasing. For adults aged between 35 and 54, 44 per cent said they would do the same, while a third (33 per cent) of adults aged 55 or over said they would do so.

Discounts seemed to be the most popular incentive, with other incentives such as voucher/cashback, loyalty scheme points or faster delivery also proving popular incentives. Around a quarter of consumers could be encouraged by a voucher/cashback (27 per cent) or loyalty scheme points (26 per cent), and 21 per cent could be swayed by faster delivery.

The survey also found that consumers within some salary brackets would need greater incentives to switch to a PISP. More than half (58 per cent) of consumers earning £50,000 or more would be encouraged to pay by PISP if they received a discount on an item they were purchasing, while just 43 per cent of consumers earning below £35,000 would do the same.

Mr Scanlon said: “The real challenge for AISPs and PISPs seeking a share of the payments market is to persuade consumers and businesses to use their new services instead of, or in addition to, traditional bank products or services developed by rival fintechs.

“Offering incentives such as discounts or loyalty points is an easy way to encourage this. Incentives and partnerships are a win-win for both retailers and new payment and financial data service providers.”

Yvonne Dunn, head fintech, at Pinsent Masons, added: “While building consumer trust in new products and services is important, the discussion needs to move beyond trust and onto the incentives and opportunities that will make consumers really engage with Open Banking.”