Banks hold large amounts of data about you. It could be of great value to you if only they let you connect things to it. So far they have not but this could be about to change.
Yesterday the Treasury committed to launching a call for evidence in the New Year into ‘how an open API standard could be delivered in UK banking.’ If this sounds like a niche piece of wonkery, it's because it is. But it is also great news, and not just for banking customers but for banks themselves.
The open API standard in question would allow bank customers to grant third parties with access to their transaction data in a controlled and automated way. This idea of allowing customers to connect third parties to their data is common across the web. For example, AirBNB customers can prove their identity by connecting to their LinkedIn, Gmail or Facebook accounts. And thousands of different websites are able to take payment for goods or services by allowing customers to connect to their PayPal accounts.
As the report* accompanying the Treasury’s commitment illustrates, when this approach to customer data is applied to banking, it creates the possibility of a new breed of highly convenient, highly personalised services.
Some of the possibilities are very practical. Connect a mortgage provider to your data and they can give you an instant view of what you can afford and the kind of mortgages available to you. They’ll no longer need to ask for payslips to prove your income, so no more digging around in old files and figuring out how to make a scanner work.
Connect a financial management tool to your data, and it can monitor your spending and provide feedback and alerts in real time. And it can do this without the tedium of uploading and downloading files, or the risk of giving your passwords to a scraper.
Other possibilities are more imaginative. Developers have already built tools that plug into your data to provide 3D visualisations of how your spending flows around the globe, display your bank balance in the menu bar of your laptop in real time, and even ones that sing your balance to you!
But despite these compelling possibilities, banks have so far not acted on their own initiative to provide this functionality to their customers. Why is this?
Doubtlessly, fragile legacy IT systems, concerns about data protection, and the burdens of a culture of regulatory compliance have not helped. It also may not have helped that the Government’s focus on consumer data has revolved around promoting competition.
APIs would allow consumers to connect ‘next generation’ comparison engines to their data. These services would then be able to analyse exactly how the customer uses their account, and then tell them exactly which current account on the market is best for their needs. Similarly, if SMEs are able to connect alternative lenders to their data then a key advantage that banks have when it comes to pricing credit would be eroded. This is no doubt good for customers and SMEs, but in framing data access as a threat it reduces the incentives on banks to act.
But rather than being a threat, I’d argue that this approach to data represents an important opportunity for banks at a time when they need to adopt a more open approach to innovation. Banks have so far been resistant to anything remotely resembling ‘open’. But an increasingly credible set of fintech companies are slowly but surely starting to unbundle the core retail product suite through which banks make money; from loans to investments to FX. If banks are to respond to this, they need to find ways to improve their offer to customers more radically and more rapidly than they have been able to in the past.
APIs are potentially a way for banks to do just this. By encouraging third parties to build services that customers can connect to their bank data, banks would be able to add large amounts of functionality to their product offering without having to develop it themselves; something they are not well placed to do. Rather than being marginalised by competitor services, banks could become the hub through which they are consumed.
Of course, we have famously seen Apple use this strategy to create huge value through their App store. But for banks to see how this would work for them, they should look to online accounting software providers like Kashflow and Xero, who hold very similar customer data to banks, and have used APIs to build thriving ecosystems of third party ‘add-ons’ that enable SMEs to interact with their data in a range of productivity enhancing ways.
Interestingly, one of these add-ons allows SMEs to file their quarterly VAT returns with just a few clicks of a mouse rather than a mountain of paperwork. With any luck, this is an early sign of how easy it will become to interact with Government once they deliver on their own commitment to allow citizens and businesses to connect to their own data.
So all in all, hopefully yesterday’s commitment by the Treasury will prove the first step in a journey towards citizens, consumers and businesses being able to connect to their data. The announcement was an impressive sign of the Treasury’s willingness to provide leadership in this field. The challenge now is for banks to prove that they don’t need to be led, and have the vision and the ability to embrace this kind of innovation on their own initiative.
* The author of this blog co-wrote the report ‘Data Sharing and Open Data for Banks’