WHAT IS THE OPEN BANKING INITIATIVE:
The Open Banking Initiative came into force in January 2018 and was initially created to make it easier for consumers to switch from one bank to another. The initiative mandated that if you as an individual, wanted to make your bank account information available (via API) to a third party, you could. This information is most commonly related to past expenditure, current balances and direct debit commitments.
This fairly simple piece of legislation has, in theory, the potential to turn the banking world upside down. It represents the first step towards decoupling banking from banking services whilst enabling companies to build products and services specifically designed to make better use of financial data.
HOW DO I GET STARTED WITH THE OPEN BANKING INITIATIVE:
It would be easy to trivialise the potential upside of an initiative like this but scratch beneath the surface and you’ll find that there are a few obstacles in the way of any company hoping to take advantage of the Open Banking Initiative:
1) Banks have been slow to create the required infrastructure to make financial data accessible through an API. The first deadline for all banks to have this work completed (commonly referred to as PSD2) was March 2019 and yet that date passed with just 59% of the 442 European banks completing the work in time. The next deadline of September 2019 has seen a better improvement but full completion is still some way off.
2) Only Trusted Third Parties (TTP’s) are able to use the open banking API’s and in order to become a TTP, one must apply to the open banking regulators, who will judge the security and the intentions of the product / service provider.
3) The bank account owners are in charge; Once the stage is reached where every bank has created the necessary infrastructure and a company has also been verified as an official TTP, a bank account owner must still be the one to grant access to their financial information (for obvious reasons!).
WHO’S USING THE OPEN BANKING INITIATIVE ALREADY:
The three step qualifying criteria has done nothing to dampen the enthusiasm of Europe’s entrepreneurs and as we approach the milestone of 100 Trusted Third Parties, now is as good a time as any to delve into how the Open Banking Initiative is being innovated upon and shine a light on whether we can expect to see any overlap between these startups and the affiliate industry.
Trusted Third Parties in the Open Banking Directory
- Businesses
- Consumers
The most notable conclusion when looking at how the Open Banking Initiative is being utilised comes in the form of the intended audience for the products and services being created. Almost three quarters of creations that rely on the Open Banking Initiative are targeted at businesses, whilst the other quarter focuses on consumers. When considering the potential overlap with the affiliate industry, our attention centres on the consumer based products and they tend to have one of three purposes:
MANAGING PERSONAL FINANCES:
These companies focus on consumers that may have their money in numerous debit, credit and savings accounts and provide services which consolidate all their accounts into one single view, often categorising transactions to help the end-user understand their spending habits.
SAVINGS & INVESTMENTS:
These companies focus on consumers that are either deal hungry, want to save money on current bills or want to use their savings in investment schemes. The end goal for all of them is more efficient expenditure and ensuring the customer gets more for their money. It should be noted though that there is a secondary function to some of these companies; in the case of Reward, Tail, Yoyo and WalletPA they broker deals with retailers or their white label partners to share their knowledge of consumer spending habits. Information such as market share within a specific industry, average basket sizes and demographics of customers are common examples of how this works in practice:
CREDIT ASSESSMENTS AND CREDIT IMPROVEMENTS:
These companies are interested in helping consumers look after their credit scores. Clearscore and Experian are very much centred on what a consumer’s score is and what factors are affecting it. Creditladder is a little different in that it allows a consumer to build up their credit score using their monthly rent payments.
DOES THE OPEN BANKING INITIATIVE OVERLAP WITH THE AFFILIATE INDUSTRY:
Affiliate marketing was originally attractive to startup businesses because of its ability to track sales and revenue for the companies that a publisher would send traffic to. In the era of Open Banking, this tracking can be done from a consumer’s bank account (assuming the service provider has an alluring enough reason for a user to share their spending habits). This inevitably means that any TTP (trusted third party) has very little need for an affiliate network’s tracking. A TTP may still perceive there to be benefit in the potential of being introduced to numerous retailers to arrange commercial deals (via a network) but the reality is that most affiliate managers won’t have the authority to sign off in-store commercial deals.
There are some specific instances where affiliate marketing may still provide a monetisation method for companies registered for Open Banking. In the case of Usebean (the bill swapping service) they have formed a partnership with Broadband Choices to help fund their operation. It’s likely there will be similar partnerships of this nature. It is appealing for a startup to partner with an established affiliate and take advantage of established partnerships (and strong commercial rates) so that the startup can focus on building and evolving their consumer offering. Similarly, the established publisher delivers an increase in sales and becomes more valuable to its partners.
WHAT’S NEXT FOR THE OPEN BANKING INITIATIVE:
In terms of the initiative’s progress, we’ll get closer to complete European coverage for the Open Banking Initiative and we’re already starting to see similar concepts form across other continents. The world of banking and banking services is becoming a truly digital, limitless and border-less presence.
In terms of the companies involved and consumer offerings, there will undoubtedly be more companies becoming registered TTPs and the majority of them will continue to focus on business related services rather than consumer benefits. This will also mean very few of them will have anything to do with the affiliate industry other than to create more competition in the form of another marketing channel that can supply transacting customers to retailers.
19 November 2019Open banking, Publishers, Founders
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