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Guest blog: Open banking and the race to beat Big Tech

Guest blog by BSA Associate member, law firm TLT

Open banking is driving significant market change by giving consumers control over their financial data, and the power to share that data with third-party providers offering new services. One of the most fascinating trends since PSD2 and open banking came into effect has been the advancement of large tech firms into this space.

Companies like Google, Amazon, Facebook and Apple (GAFA) and China's Baidu, Alibaba and Tencent (BAT) have substantial resources and unrivalled expertise in big data. They also have an established track record of disrupting various industries worldwide, including payments. In May, Chinese firms Tencent, Alibaba and Xiaomi were granted virtual banking licences by the Hong Kong Monetary Authority to launch digital banks – a major development in this changing market.

Although we are yet to see such radical developments closer to home, in many respects the UK has taken the lead in the digitisation of financial services. It would be foolish to think that Big Tech's influence over financial services will end in Asia, and with the major banks.

From a product perspective, the UK has a mature credit and debit card market and many banks and building societies are already integrated with digital wallets, with 'Apple Pay' and 'Google Pay' becoming established methods of payment alongside PayPal. More recently, Apple has teamed up with Goldman Sachs and MasterCard to launch the 'Apple Card' – a credit card, complete with repayment options and cashback facilities on various Apple-related purchases, built into and managed by the Apple Wallet mobile app.

Apple’s entry into the world of financial services through Apple Pay and Apple Card is a logical step when viewing Apple as a tech and lifestyle brand, with a range of integrated services orbiting around the use of core Apple products. Other large tech firms may also recognise the benefits of building open banking channels into their existing business models.

Banking regulation has historically been a major barrier to entry for service providers outside of the building society and banking space. However, PSD2 compels EU banks and payment service providers to make account information available and allows customers to give consent for use by third parties they trust.  By registering as Account Information Service Providers (AISPs) or Payment Initiation Service Providers (PISPs) under PSD2, large tech firms can access this information in the EU without the requirement to obtain a full banking licence.   

All this sets the stage for a near-future where users of personal digital assistants and smart speakers may be able to ask "OK Google, which is the best mortgage product for me?" and, if they like the answer, "Alexa, switch me!"  If that future becomes reality, this presents a considerable challenge to more traditional, established banks and building societies.

As well as developing digital service offerings in-house, the pressure on building societies to innovate and keep competitors at bay has resulted in a flurry of fintech-centric partnerships, joint ventures and acquisitions. Strategic partnerships present an attractive opportunity to benefit from specialist tech expertise and a customer experience-focussed and data-led culture.

For all participants, the race is on to find the killer product or the perfect partnership to win market share and establish a leading position in this exciting and unpredictable market.

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