Some might have already labelled it a failure but open banking will continue to evolve and insurers should sit up and take notice. That is the view of The Marketing Eye's Neil Edwards, who believes these platforms could eliminate form filling and make risk assessments faster and more accurate.
Think insurance, think distribution and the mind immediately goes to aggregators, brokers and direct. There is, though, a need to bring thinking about channels up to date.
Banking is undergoing radical change, driven significantly by open banking.
For the uninitiated, open banking requires banks, under law, to open up their customers’ data to third parties and let those third parties execute transactions on the customer’s behalf - providing, of course, the customer agrees. As well as having the customer’s specific consent, any business that wants to access bank data must be authorised by the Financial Conduct Authority as an account information service provider.
The intent is there to encourage competition in financial services and allow new service providers into the market that might not want to offer all the services of a clearing bank. The concept of all our financial lives being centred on the bank that we chose on leaving school, simply because it has the information and control, should be a thing of the past.
So, what is this likely to mean in reality?
When fully operational, the prediction is that open banking will bring about a huge shift in terms of how people think about and manage their money, with platform banks and marketplaces becoming the norm. Rather than any one of us having to go to a range of websites and apps to access information on the accounts we hold, platform banks will allow us to access information on all our financial lives, regardless of the supplier.
HSBC is currently leading the way among the Big Four with its ‘Connected Money’ marketplace proposition which allows customers to see their accounts at up to 21 different banks. Others will surely follow. At the same time, challenger or ‘neo’ banks like Tandem, Starling and Monzo are building their business models on APIs and being the go-to place for all financial needs, without necessarily being the product owner themselves.
As far as insurance is concerned, the possibilities for open banking are still being explored and, to my knowledge, we’ve yet to see an Insurtech break cover with a significant new product idea. In theory, using open banking data to eliminate form filling and make faster and more accurate risk assessments has significant potential. Today’s customers expect simplicity and ease of use, a brief that many insurers have struggled to fulfil. open banking creates the potential for a new generation of products with a higher standard of user experience. Dare we say it, applying for insurance could even become fun.
As Dr Louise Beaumont, co-chair of Tech UK’s open banking and payments working group, said: “Sharing my data will enable highly personalised and pleasurable services to wrap around me. And the more of my data I choose to share, the more predictive and pre-emptive these services can become, and the greater the potential for the brands I trust to make smarter suggestions that work for me and feel good – pleasure is the new loyalty.”
As well as product development opportunities, however, insurers need to be aware of what open banking could mean for customer information and choice. We’re likely to see much more sophisticated comparison apps and financial analysis tools, as organisations create products out of the detailed data that banks will provide.
For example, fintech business Bud is working with HSBC to build an app based on open banking that will scan customer accounts to make sure they’re on the best phone and energy tariffs. To see how this could be similarly applied to insurance doesn’t require a huge leap of the imagination.
Jamie Campbell from Bud said: “We’re only at the very beginning, but the fact that a global organisation like HSBC has embraced the change and got a major new product to market in very quick time shows that we are on the cusp of a new era. At Bud, we’re excited about what we’re doing with HSBC and are keen to explore more use cases, including in insurance”.
The fact that open banking has been slow to take off and that public awareness is low, has led to some people labelling it a failure. That, though, is shortsighted as the legislation that came into effect on 13 January was only one milestone in a process that started in 2016 and will continue to rapidly iterate and evolve. We could need to wait three years or more before we realise just how different the financial services landscape is.
However long it takes, the direction of travel is clear. Financial services organisations are recognising that to remain relevant, they need to shift the relationship they have with their customers from a transactional one to one based on interaction and engagement. We can expect to see more analysis and more integration of financial services into our daily lives via intelligent coaching and prompting, which in turn will drive greater financial awareness and wellbeing.
Insurance can be at the very heart of this transition and now is the time for insurers and insurtechs to be thinking strategically about the benefits open banking can bring. The winners will be those that realise that building APIs for easy integration into an open banking proposition will give unique access to a very large and loyal market.