Why are credit unions changing vendors at a higher rate than banks?

Credit unions are almost twice as likely to change vendors as banks, with competitive churn rates of 7.6% compared to 2.7% for banks.  Churn Rate measures the number of institutions in a given time period that either change or drop a vendor contract.  Churn is broken down into two components: competitive churn, which measures the rate at which institutions are opting to change vendors, and consolidation churn, which measures uncontrollable factors like acquisitions or liquidations. The figure below (powered using data from FI Navigator) references total churn for the year ending March 31st, 2016.

FINPic

The figure reveals significant differences in churn between banks and credit unions.  But why is this difference so large? There are two possible drivers:

  1. Customer centricity: A focus on the customer could be a driver for higher churn. Banks and credit unions operate differently, and Celent has explored the variations in blogs and publications.  The mission statement of the credit union market has historically revolved around extreme customer centricity.  Over the last decade, mobile has become a critical component in quality customer service.  Emphasizing the needs of the customer could be driving credit unions to take more concerted efforts to maximize mobile/ digital, exploring competitive options more frequently than banks. Credit unions are low margin businesses that often give higher interest rates for products like auto-loans or deposit accounts through non-profit tax breaks.  Being member-owned, most of the smaller profits also go back into the business.  This creates a natural incentive to streamline the back-office, and credit unions have adopted cost effective technologies at higher rates. Thin margins combined with a focus on customer service could mean credit unions are more likely to evaluate provider options more frequently.
  2. Solution providers: Another perspective is that it’s the vendor market, not the CUs that are driving the churn. The vendor spectrum for credit unions in the US is much more diverse, with 43 vendors compared to 22 selling to banks.   This would reinforce the argument that competitive dynamics are more intense, and it would be reflected in sales cycles. With cost pressures that originate from their smaller size and lower margins, credit unions are more likely to look for alternative ways to provide products and services, leveraging mechanisms like Credit Union Service Organizations (CUSOs) to enhance the business.  Other similar joint ventures leverage cooperative arrangements to develop homegrown software products.  Consortiums not present in the banking market would introduce more competitors into the market, and as a result impact competitive dynamics.

Credit unions skew much smaller than banks (the mean credit union asset size is  $200 million vs. banks with around $2.5 billion), leading to a noticeably higher consolidated churn. Celent examined the pressures on credit unions here. As minimum viable institution size continues to get bigger, smaller institutions will be challenged to stay afloat. Vendors will face the risk that their customers are becoming targets for M&A activity resulting in more vendors competing for a shrinking demographic.

Credit unions need to think about how to best streamline their operations to remain viable.  This includes a mix of cost-effective customer service technologies like mobile banking.  Vendors need to have a better understanding of the competitive landscape into which they sell, as competition is intense.  Better data and detailed benchmarks can help vendors plan their strategy.

Celent is collaborating with FI Navigator to analyze the mobile banking market in financial services (in fact, FI Navigator wrote a great piece about credit unions and banks last year).  FI Navigator assembled a platform that leverages a proprietary algorithm to track every financial institution offering mobile in the US, as well as nearly 50 vendors.  Beginning with the first report at the end of April, Celent will be releasing a biannual examination of the mobile market. FI Navigator will also be making the platform available for further custom reporting and data analysis.  For more information on the nature of the collaboration and availability of data, go here.

Digital banking is ready to take off in Latin America

Digital is the new reality in Latin America. In a recent Celent survey 100% of the participants recognized that a scenario where all financial products get digitized needs to be addressed sometime in the next 7 years and 59% of them believe it needs to be addressed immediately. There is also a general consensus that most banks are entering into Digital late, despite some are already moving in that direction. Threat of fintechs is also a reality. Over 80 fintechs in Brazil and 60 in Colombia are a good sense that the industry is already being challenged beyond incumbents.

In other geographies Banks have responded to this threat by becoming extremely digital and also neo-banks have been launched to attract those customers seeking for a more friendly and digital relationship with its financial institution. Atom Bank in the UK, Fidor Bank in Germany, and mBank in Poland are only a few to mention. In Latin America the major milestones in Digital development we had seen were Nubank (Brazil – Market Cap $500M) and Bankaool (Mexico – ~$142M in assets), until March of 2016 when Banco Original (~$1,67Bn in assets) launched in Brazil.

While Nubank is focused entirely in offering a credit card with a customer friendly personalized real-time view of expenses and modern contact channels (email, call or chat), Bankaool is mainly focused in a checking account with a debit card, SME loans and investment vehicles.

Banco Original is the 3rd step in this digital only bank strategy in the region, becoming the 1st universal digital only bank in Latin America.  As part of its strategy to position the bank as different and innovative they launched this advertising campaign featuring Usain Bolt. As part of a strategic definition in 2013 the bank started a ~$152M investment over the period of 3 years to become a digital bank. They launched in March of this year . The bank has no branches and the interaction is 100% through digital channels and a call center. This move was central to its strategy of becoming a universal bank moving away of being solely focused in agribusiness.

While most of neo-banks and fintechs looking to change the customer experience in financial services have adopted in-house development to support their digital strategy, this is not the case of Banco Original which relied in a 3rd party Open API solution. Commercially available solutions that can support a digital only bank means that as an industry we are ready to take off. There is no reason now why other banks should not follow, and software vendors will do their part pushing their offering into banks of all sizes.

I believe that we are in a tipping point were banks in Latin America will need to re-think their investments and strategies towards digital: the threat is now real.

Two upcoming reports will be covering Digital and a couple of disruptive scenarios in the banking industry in Latin America, so expect to have more information soon if you are a Celent customer. If you would like to become a Celent customer please contact Fabio Sarrico (fsarrico@celent.com).

 

I hate being wrong: A precise look at mRDC adoption in the US

Nobody likes being wrong. I’m no exception.

Sometimes it’s not so much being wrong as much as being inaccurate. Here’s an example of where my best-effort estimates have been a bit off.

Mobile RDC (mRDC) has been a fairly hot topic and a mobile banking capability that has gained rapid and widespread adoption among US banks. But how rapid and how widespread? I’ve taken a stab at answering these and other questions over the past few years. Relying on a combination of financial institution surveys and RFI responses from the leading vendors, Celent has published comprehensive annual reports on the evolving state of remote deposit capture, including mRDC.

Back to the question…

Since empirical methods would be tedious and time consuming, I created estimates of mRDC bank adoption annually based on vendor-reported client base and implementation backlogs. It turns out that two of my last three annual estimates weren’t all that accurate. How do I know?

Last month, FI Navigator and Celent announced a collaboration to publish the industry’s most comprehensive report detailing mobile banking offerings on the more than 6,000 U.S. financial institutions that offer mobile banking and more than 50 vendor providers.

The report, Mobile Banking Quantified – Comprehensive Benchmarks for US Vendors & Institutions, will be available for download in late April 2016. The research leverages FI Navigator’s mobile banking data and analytics module, along with Celent’s industry research methodologies, to provide vendor and institution performance standards from nearly three years of month-to-month historical data.

Look at how my historical annual estimates compare to the more accurate FI Navigator data since mid-2013.

mRDC History

Back in 2013, vendors were implementing as quickly as they could. In aggregate, vendors reported over 700 banks and credit unions were under contract, but not implemented. It turns out that implementations proceeded faster than I thought, as my year-end estimate was 40% low! I did better in 2014, but estimated 9% high in 2015.

I look forward to the extraordinary precision and depth of insight Celent’s relationship with FI Navigator will bring the industry. For more information on the report and additional offerings, please go to http://discover.celent.com/FIN-Mobile.

Congratulations to Celent Model Bank 2016 Winners!

Last week many of us at Celent were in New York attending our Innovation and Insight Day on April 13th. It is Celent's flagship event during which we announce Model Bank and Model Insurer winners and celebrate their achievements. In addition, the program includes keynote speeches from industry leaders and Celent analysts, plenty of opportunities to network with peers, and even to experience some of the latest technologies first hand, courtesy of our sponsors.

The theme of this year's event was "Financial Services Reborn", and the Museum of American Finance on Wall Street provided an inspiring setting to celebrate innovation in financial services. Craig Weber, Celent CEO, kicked off the proceedings drawing insightful parallels between the battle of Alamo and the future of financial services. It must have been the first time in Craig's career that he had to come up on stage to the soundtrack of hip hop music, an extract from the Broadway musical "Hamilton", but it set the tone for the rest of the day – to expect the unexpected and to be open to new ideas.

Both of our guest speakers – Nadeem Shaikh, Co-Founder and CEO of Anthemis Group, and Leanne Kemp, Founder and CEO of Everledger – thrilled the audience and opened everyone's eyes to the opportunities presented by Fintech and Blockchain respectively, while our colleague Will Trout spoke eloquently about consumer-led convergence. A big 'thank you' to all the speakers, as well as the sponsors supporting the event!

The rest of the day was all about celebrating the achievements of Model Bank and Model Insurance award winners. As many of this blog's readers know, the vision for Celent’s Model Bank research, now in its ninth year, is to spotlight effective uses of technology in banking. This year we received a record number of submissions – well over 100 – that came from all over the world; the nominations were spread equally between North America, EMEA and APAC. The award winners come from four continents and nine countries and range from credit unions and microfinance institutions to the world's largest banks.

Celent Model Bank 2016 winners are:

  Model Bank 2016 Categories

  Award Winners

  1. Digital Banking Transformation

  Citizens Bank, US

  DenizBank, Turkey

  Garanti Bank, Turkey

  Santander, US

  2. Omnichannel Banking

  BECU, US

  Beyond Bank, Australia

  Standard Chartered Bank, Korea

  3. Digital Payments and Cards

  Bank of America Merrill Lynch, US

  RBC, Canada

  4. Corporate Payments and Infrastructure Modernization

  Bank of China, China

  CBW Bank, US

  5. Cash Management and Trade Finance

  CIBC, Canada

  HBL (Habib Bank), Pakistan

  6. Security, Fraud, and Risk Management

  Alfa-Bank, Russia

  USAA, US

  7. Legacy Transformation

  Sberbank, Russia

  Umpqua Bank, US

  Vietnam Bank For Social Policies, Vietnam

  Model Bank of the Year

  Eastern Bank, US

As always, we published a series of reports with detailed case studies of all winning initiatives. Celent research subscription clients can access the Model Bank of the Year and individual category reports via our website.

This year we also introduced a new award, Model Bank Vendor. We wanted to acknowledge the vendor role in helping multiple clients achieve technology or implementation excellence, one of our judging criteria, and to extend our appreciation to the entire vendor community, which is instrumental in the ongoing success of the Model Bank program. Celent recognized two companies as Model Bank Vendors for 2016:

  • EdgeVerve Systems
  • Nucleus Software

Congratulations to all our award winners! We are grateful to have been exposed to so many extraordinary initiatives and the talented individuals responsible for their success. We look forward to continuing with the Model Bank program next year to identify and award the most impressive banking technology initiatives from around the world, and will begin accepting nominations again in September – stay tuned!

 

A good recipe from the Brazilian banking industry in times of need

The world seems convulsed these days. No matter where you live, something significant is developing around you or about to burst.

Brazil has not been the exception. Economic slowdown and corruption allegations involving high officers in government and the private sector, have led to massive social protests. The Panama Papers only to continue to build a lack of trust on things changing easily. But Brazil is a huge economy, with very talented people and industries that can compete at world-class level. Some things need to change for sure; with a trusted leadership is just a matter of time for Brazil to come back to the right path.

On a positive note from the financial sector, early this year FEBRABAN, the Brazilian banking industry’s main federation, and Brazil’s top five banks entered into a memorandum of understanding with LexisNexis®Risk Solutions by which the latter will provide technical services for a new credit intelligence bureau that will modernize the current Brazilian credit risk information ecosystem.

The effort has the objective of financially including more Brazilians in the long run and efficiently assessing consumer credit risk, with the potential to "change lives, generate sustainable economic expansion in a world-class economy, all the while providing financial institutions with the tools to assess and manage risk more effectively" as indicated in LexisNexis®Risk Solutoins press release. It will make possible for the credit intelligence bureau to process and analyze complex, massive data sets in a matter of seconds. It is expected that the ability to process quickly large volumes of transaction data will help the credit intelligence bureau to effectively manage financial payment experiences, resulting in a bureau with a sophisticated infrastructure.

This decision by FEBRABAN, Bradesco, Banco do Brasil, Caixa Econômica Federal, Itaú Unibanco and Santander comes very handy in order to offset the effects of the country's economic moment by expanding the potential market and providing financial solutions to people that are seeing its purchasing power affected. Banks are not alone in coming up with positive initiatives as insurers have also made moves along these lines.

It’s good to see that, from the banking perspective, Brazil does not stay arms crossed waiting to see what happens; instead they are trying a good recipe to be applied in times of need: Seeking efficiency and growth, by financially including more people into the system through a more effective risk assessment.

 

Getting to digital while missing the point

Digital banking is so hot right now – for good reason. The recently published research sponsored by the Federal Reserve, Consumers and Mobile Financial Services 2016, reported that 87% of the U.S. adult population has a mobile phone and 77% of them are smartphones, up from 71% in 2014 and 61% in 2013. Admittedly, it is getting hard to find a phone that’s not internet-enabled. But consumers are acquiring them for a reason – and it’s not telephony. The same report documented the rise of mobile banking: 43% of all mobile phone owners with a bank account had used mobile banking in the past 12 months, up from 39% in 2014 and 33% in 2013.

Digital Banking Not surprisingly then, the significant majority of US financial institutions now offer digital banking capabilities to their customers. But, most were designed to migrate transactions away from the more expensive branch channel to lower-cost self-service mechanisms. A worthy objective, but it misses the point (more on that later).

Celent has research in the field now designed to understand just how far US banks and credit unions have come in achieving digital channel adoption targets. The short (however preliminary) answer: not very far. It’s not for lack of trying, however. Two-thirds of responding institutions said they have specific, measurable digital channel adoption goals.

Digital adoption goals Mar 16
Source: Celent Managed Research Panel, March 2015, n=32

Beyond Transactions More recently, a growing number of banks and credit unions are thinking beyond transactions toward digital sales and service. Another worthy objective, particularly among the large number of institutions that are, frankly, desperate for revenue growth. A minority have specific , measurable goals to increase digital customer acquisition. We expect that to change as more banks embrace the imperative for omnichannel delivery. Institutions thinking beyond transactions are paying close attention to the state of digital customer acquisition – for good reason. About three-quarters of banks in Celent’s survey track completion rates, but far fewer systematically follow up on incomplete applications. This is a problem! The apparent disconnect seems to reflect a bias towards digital delivery. If cost reduction is the primary objective (it rarely is) than good. But if revenue growth and customer engagement are what banks are after (I believe that to be the case) then many are missing the point.

In my opinion, the objective of omnichannel banking shouldn’t be tied to migrating an arbitrary percentage of customer interactions to the digital realm – whether transactions or sales. Consumers are becoming increasingly digitally-driven without bank’s involvement! The point of omnichannel delivery is to offer customers consistent and convenient ways to engage with your bank whenever and wherever they so choose, not to achieve some arbitrary channel mix.

The fact is, most consumers don’t want to open accounts on their mobile devices, even though they are very likely to be researching banking products and services online. That’s why banks need to offer a variety of low-friction ways to engage with customers and prospects. Click-to-call and digital appointment booking are two examples. Digital appointment booking (DAB), in particular, has emerged as “low-hanging fruit” among banks seeking to better integrate digital and in-person engagement. Although impressive results can be obtained from relatively modest effort, few institutions have taken this step.

Digital Appointment Booking First and foremost, DAB is not about driving branch traffic or somehow prolonging its relevance as some have suggested. Rather, DAB is about improving omnichannel customer engagement. Best practices suggest it is not a silver bullet either, but one of many customer engagement mechanisms that leading financial institutions are learning how to orchestrate to better serve customers. DAB is also not simply about booking appointments. When integrated with lobby management systems, DAB solutions help customers efficiently and effectively accomplish what they want and when they want it. Done well, DAB is very much a win-win. This is the point, isn’t it?

I’ll be presenting on best practices in digital appointment booking at American Banker’s Retail Banking 2016 in Las Vegas on Wednesday afternoon April 6th. The presentation is part of Innovations for Credit Unions from 1:00 – 4:00 in the afternoon. If you’re planning to attend, feel free to stop by and say “hello”!

There are *exactly* 608 US firms offering banking fingerprint authentication

Biometrics are hot. Fingerprint authentication (Apple’s version is Touch ID) is one of the most common forms of biometric verification. So, quick – how many American banks let customers log on to their accounts using this method? Based on the press, you might optimistically think a few thousand, right? And, in fact, ApplePay just activated its 1000th bank (adoption is another story, and the subject of another post). Well, as of January 31, the actual number (not an estimate, not an extrapolation, and not a piece of data from Apple) was 608. That’s 9.52% of the 6,388 FIs offering a mobile banking application. How does that compare to three months ago, at the end of October 2015? At that point just 252 FIs were offering it. That’s an increase of 241% in a quarter, certainly a sign of robust growth. Some of the increase comes from clients implementing from their hosted solution provider. Others (generally bigger banks) are developing it in-house. And yet, it’s not as popular with the large banks as one might think (of the 21 with more than $100bn in assets, only 8 offer fingerprint authentication; 3 of the top 4 have it). Bucketed Adoption Does fingerprint authentication pay off? By one measure, something we call “feature lift,” it does indeed make a difference for customers. Banks whose customers have installed fingerprint authentication have an uplift of 53% in enrolled customers per deposit account relative to banks who don’t offer it. While this is correlation, not causality, it shows that the banks who offer this feature have more customers enrolled in mobile banking than those who don’t. We’re looking forward to analyzing many more mobile banking features to see which ones offer the biggest impact on customer enrollment. Uplift How did we access this information? I’m very excited to say that Celent is collaborating with FI Navigator to analyze the mobile banking market in an unprecedented depth of detail. FI Navigator has assembled a database of every US bank and credit union offering retail mobile banking, together with the vendors who host them. We’re feverishly analyzing this trove of data to bring you a report at the end of April. It’s different from, and additive to, work made available to our existing clients; you can find the particulars here. To let you in on how the sausage is made, we originally tried to find out how many banks offered fingerprint ID by doing a standard search (which turned up press releases and the like) and by contacting a few vendors. We were able to arrive at roughly 250 banks in total, including several dozen from one vendor (from whom it was difficult to get precise answers in terms of commitments, scheduled go-lives, and actual implementations). It turns out that we undercounted by more than half. The beauty of the FI Navigator data is that it’s derived from a variety of sources – on a monthly basis – that let us deduce and infer a huge amount of actual information about the entire US retail mobile banking population, not just a subset. By integrating unstructured website data and conventional financial institution data, FI Navigator expands the depth of peer analytics and the breadth of market research to create vertical analytics on financial institutions and their technology providers. So, in addition to my excitement at this new and powerful data source, I have three takeaways about fingerprint authentication:
  1. The gap between hype and reality for fingerprint authentication is big, but shrinking;
  2. Banks don’t have to be large to do this; and
  3. More banks should be offering fingerprint authentication.
Why is your bank or credit union not offering your customers the chance to authenticate with their fingerprint?

Money20/20 Europe – a new addition to the circuit

One of the key parts of being an analyst is attending conferences. At first it may seem like an ideal job, swanning around the world attending them (and to be frank, we’re not complaining!). In reality, they’re a very busy and critical part of our job, and choosing the right one is key. Firstly, we get to meet people. With global coverage, we spend much of our time talking to people on the phone. Yet nothing beats meeting people face to face still. Conferences then are as much about who you meet as anything. Secondly, the content. Our job is making sure we have the finger on the pulse of what is happening, and what matters. To be truthful, we often don’t get chance to attend many sessions as we’d like, but the conversations, whether formal or the casual catch-up in the corridors are just as vital to us. With so many conferences to choose from, it’s vital that we pick the right ones to attend. It could be a full time job just visiting them all, and every year at least one conference clashes with another. One recent conference that seems to have almost instantly established itself on the circuit is Money20/20. Celent analysts have attended the first three in Las Vegas, and seen it grow rapidly. It’s therefore no surprise that we’re watching the inaugural European version with interest. Cunningly titled Money20/20 Europe, it takes place in Copenhagen April 4-7. As with any event, it’ll take a little while to settle into its on rhythm but already the agenda is attracting some well known names from the banking industry. We suspect that this will become one of the mainstays of the European banking calendar. If you plan to attend but haven’t registered yet, feel free to use our Celent discount code CEL200, worth €200 off of your ticket. We hope to see you there!

Banks are dead? Long live banks!

A few weeks ago, Zil blogged about the recent set of reports that he and I wrote on reimagining payments relationships between banks, retailers and Fintech. They were commissioned by ACI Worldwide, and the reports took a perspective of each party. Given the current focus on the topic in the industry, we highly encourage you to read them. But it’s worth just summarising our thinking in a few sentences. Contrary to what many people think, we don’t believe that Fintechs will replace banks, but that all three parties will co-exist, and rather than Fintech being a wedge between bank and client, they will become the glue, and an increasingly important part of the ecosystem. Whilst I trust our insight was unique, the topic certainly isn’t. It seems mandatory to have Fintech in every press release and every conference! What is interesting though is that many people seem to see Fintech in isolation, and that there are many other things happening that are not just enablers, but perhaps multipliers of the impact that Fintech will have. Take PSD2 and the XS2A provision. We’ve covered this numerous times in reports, but in short, is a mandated requirement to allow third parties access to account level information, and the ability to initiate a payment from that account. In theory then, a Fintech can now access your data at your bank and, with your permission, pay anyone directly from your account. In the context of above, what is interesting is the responses we’ve seen from the industry. A few banks have seen the opportunity. Most see it as a threat and/or a regulatory burden they have to fulfill. Few Fintechs seem yet to have publicly declared any interest – or indeed, knowledge! – of the PSD2 at all. The most interesting conversations seem to have been coming from the merchants. They’re exploring the potential to bypass cards. The appeal is obvious – if they become a third party provider, they can get the consumers to push payments directly, with no fees payable by the merchant. Given the growth in real time payments, these will be increasingly good funds, with instant value. One scenario then sees the merchants dramatically impacting the business model of the banks, with card revenues plummeting, with the merchants benefiting from improved cash flow. Yet there are other implications in that scenario. For example, can those merchants actually handle the volume of payments? Is their ERP system real-time, and able to reconcile at the same speed? Are they sophisticated enough to cope in the change in their cash management profile? Yet central to this change remains the bank. Those merchants will need the banks more than ever, not less. The services might change, the business model might change for most of the parties involved, but the requirement remains as strong as ever. Banks are dead? Long live banks!

The UK open banking API framework – more questions than answers?

This week the Open Banking Working Group (OBWG) published its framework for the UK Open Banking Standard. The framework seeks to create:
• An open API for data that is shared, including, but not limited to, customer data, and
• An open data API for market information and relevant open data

Secure, publicly accessible Web APIs have been around for more than ten years in the financial services sector. Many popular eCommerce platforms employ APIs to increase adoption by exposing various features of the underlying platform to third-party application developers. These include PayPal, Stripe, Authorize.Net and LevelUp. Payment APIs have grown by almost 2,000% since 2009, with Financial APIs growing at more than 470% during that time.

Banks embrace APIs to modernize and streamline back-office connectivity, especially for customer-facing digital channels. However, except for a smattering of bank API hackathons featuring mock customer account data and the well-publicized external APIs made available by digital bank Fidor, banks are reluctant to publish open, external APIs for customers or third-party to access financial data. Two major government initiatives are forcing their hands.

The account access provisions of PSD2 require Euro Area banks to open access to customer information where third-parties have the explicit consent of the customer. The UK HM Treasury Open Banking initiative strives to improve competition and consumer outcomes by giving customers the ability to share their transaction data with third party providers (3PPs) using an open API standard for UK treasury.

The UK government established the Open Banking Working Group in August 2015, giving it the remit to design a detailed framework for the development of an open API standard in the UK. The detailed framework was published this week after review by the HM Treasury.

Open Banking Framework

Sifting through the 128-page report, several key issues remain to be addressed:

Governance: The report recommends the creation of an independent authority to oversee the development and deployment of the Open Banking Standard. As co-chair of the OBWG, is the Open Data Institute vying to become that independent authority? IMHO, the banking industry doesn’t need yet another standards body. Why not engage the expertise of an existing organization like the International Organization for Standardization (ISO), the governance body of the popular ISO 20022 standard, to ensure an internationally agreed upon approach with the involvement of a diverse group of stakeholders?

Data Standard: The report recommends that existing standards, datasets and structures be reused where possible but also mentions further investigation as to whether the Open Banking Standard will need a separate reference data model. I hope that the OBWG examines the widespread adoption of the ISO 20022 financial industry message scheme and its contribution to standardizing and simplifying financial data exchange worldwide.

Data Protection: The report states that banking customers (individuals and businesses) need to understand their responsibility for informed customer consent and ensuring their data is protected. This is problematic in light of continued social engineering banking losses, an emerging global fraud threat. The report acknowledges that it is likely that cyber-criminals will specifically focus on the open API as a new attack vector. Consumer education needs to be the responsibility of the Open Banking ecosystem: Banks, 3PPs, government agencies, and consumer watchdog groups.

Developer Resources: The recommendation that a central developer hub be created to support developers is a seemingly practical idea. However, there are a number of leading API platform providers and no universally accepted RESTful API design methodology, which will lead to a scramble by the proponents of RAML, SWAGGER and Apiary.io to be the provider (and language) of choice for creation of common open APIs and developer sandbox.

Implementation Schedule: The report outlines a multi-year release schedule with the first release to be completed within 12 months of the report’s publication—February 2017. This seems to be very aggressive considering that detailed design specifications are not yet complete, nor has an independent authority been selected to oversee development of the standard.

Monetization: Respondents to the February 2015 Call for Consultation estimated the cost of developing an open API standard would range from “negligible to tens of millions of pounds.” At first glance the Open Banking initiative seems to provide all of the benefit to fintech firms with all of the cost shouldered by UK financial institutions. Celent anticipates acceleration of bank/fintech partnerships aimed at creating differentiated value propositions.

Interoperability: Banks and solution providers are closely watching the intersection of the UK Open Banking initiative and the account access provisions of PSD2. There is significant overlap between the two initiatives and industry participants hope that they will be joined up, but for now the HM Treasury is actively seeking to take the lead with its aggressive implementation schedule. Interoperability across geographies and sectors fosters sustained innovation and broader participation by third parties, contributing to the UK Treasury’s goal of improving competition and consumer outcomes.

The recommendations for implementing the Open Banking Standard will be carried out by the Open Banking Implementation Entity. Celent analysts are watching developments closely and assessing their impact across our coverage areas. We welcome your feedback—what are your thoughts about opening up customer banking data to third-party providers?