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Consumers don’t need to know how open banking works, but if it is going to succeed, they need to be able to trust it.
Much of the work on open banking – and media coverage – so far has centred around the enabling legislation, framework and technical platform development.
There’s a risk that makes open banking seem far more complicated than it is, particularly with evidence showing most consumers don’t know what open banking is.
BNZ Head of Payments Development Jonathon Dale said in some ways, open banking shouldn’t mean anything to consumers, but they should still be able to benefit from it with a high degree of trust.
He gave the example of the Internet of Things, the tech sector’s buzz word a few years ago, “Now it’s less about the catchphrase, it’s embedded in a lot of stuff that we use, but we don’t call it that.”
If its roll out and adoption is successful, the same will apply to open banking, with relatively seamless integration of payroll, quality control, loan applications and budgeting.
“That ease and convenience piece is absolutely key with open banking.”
BNZ made a decision to be an early mover in the open banking space and had operating agreements with many aspirational fintechs before the cross industry framework deadline earlier this year.
Dale said the bank already had over 250,000 customers using an open banking connection, largely for budgeting and payments.
A quarter of a million is a substantial number of Kiwis for a single bank so early in the piece, but Dale believes open banking is starting slow.
“We’ve seen internationally, and nothing indicates that it would be different for New Zealanders, that it starts off quite slow.
“You’re not going to see a monumental shift in the short term because trust and awareness needs to build up, but once that cracks open it’ll start to really build momentum.”
He compared it to commentary from the early days of computers, with commentators saying they were too complex and expensive and that they created security concerns without solving a real problem.
The same opinions have been pitted against open banking, “Computers became successful because of execution.
“The uplift will come from fintechs and banks that execute in the market and solve painpoints. The infrastructure and regulation itself will not accelerate growth on its own.”
So what does good execution look like?
Dale said it would still be handled through interrelated and intertwined apps that function together across banking, energy, telecommunications and other spaces.
“What would be a complete failure is if you have this proliferation of services that just becomes cluttered and hard to navigate, think of it like a wallet that you open up and you have 15 different plastic cards and loyalty cards, it becomes so confusing, you sort of give up or just don’t use them.”
Open banking isn’t just for consumers – if executed properly it has the potential to enable economic growth for New Zealand’s small and medium businesses with better access to capital and receiving payments faster and more cheaply, all real issues for SMEs.
Consumer trust in a system that the wider public knows very little about is almost as important as execution.
The United Kingdom has had a relatively long run with open banking (enabling legislation passed in 2018), but the percentage of consumers that have adopted the tech is sitting in the low teens.
Using the UK as an example, Dale said trust was the “secret sauce”.
“If you don’t have trust, and you’ve seen in the UK that if it takes a while to build that up, if it’s sluggish, then the success of open banking takes longer to execute.”
He said trust came down to giving security control back to the consumer, “BNZ spent a lot of time looking at customer controls, where you can see exactly who is accessing your data, what data is being accessed and you have the ability to revoke access to it at any point in time.”
The Customer and Product Data Bill currently out for consultation is a key piece in ensuring that companies or individuals that access open banking data treat it properly.
Late May saw the deadline, imposed by cross-industry body Payments NZ, for the four major banks to open up their systems to give third-party companies access come and go.
Dale said the industry needed to educate New Zealander’s about how open banking improves security and safety when compared with data sharing methods like screen scraping, used by some fintechs.
Screen scraping, commonly seen in online payment systems, is a practice where you log a third-party service into your bank account, and once in there it acts like you to make a payment (skirting credit card fees) or collects data.
“It’s perhaps less about breaches that we’ve seen in the past and more about where that data goes.”
Transactions put through screen scraping providers currently operating in New Zealand have been tracked as going through Eastern Europe, “There’s a creepy factor involved there.”
Another important aspect of trust is making sure consumers know what open banking isn’t.
There are a lot of open banking-esque products and services out there that do have dangerous elements to them, such as impersonation or scraping services – think existing third party online banking payment options that come up as options when online shopping or booking flights.
Another industry imposed deadline is coming up for the banks in November.
The May deadline opened up payment capabilities, while November is all about data sharing.
BNZ has already implemented that functionality, and Dale said it had resulted in a sharp uptick in inquiries from fintech companies.
“It sounds like a broken record, but what that unlocks is a faster loan application process, budgeting tools and things like verification of accounts and enabling balances through digital wallet apps.
“That’s quite important in a cost of living crisis. What we’ve seen for BNZ customers is a lot check on mobile banking and shuffle money across before paying at grocery stores. They are obviously fearful of a decline. If you can reduce that, you’re reducing the friction for consumers, giving more confidence.”
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