Written by Molly Rumbelow
Posted on 24/07/2018

Open Banking: Revolution or just evolution?

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As we’ve talked about in the previous two articles, Open Banking comes with its own unique risks and its rewards. Both the mitigation of risks and the ability to latch onto the opportunities depends on the Financial Services industry’s ability to transform itself from a digital perspective.

But, given the recent disasters in relation to the TSB migration – how wise is it to make large-scale digital changes quickly? And is the adoption of Open Banking going to be a slower burn, meaning that companies have more time to get the changes made – thus reducing the risk of failure? 

A cautionary tale

Firstly, let’s start with what’s happened at TSB, and what the implications are for the business, its customers, and the market as a whole. 

In its essence, this was a large-scale software migration from the legacy Lloyds Banking Group (LBG) system onto ‘Proteo4UK’– the UK specific version of Sabadell’s (TSB’s parent company since the 2015 takeover) existing core platform – Proteo. But, this wasn’t just a system to system migration. The LBG platform was a combination of a number of legacy systems merged together.

And for one reason or another – it didn’t work properly. This resulted in outages on both the mobile app and desktop site over a period of five days.  

The customer impact of a five-day meltdown of online functionality has been incredibly painful – and public. Disgruntled users took to social media in their thousands to express their anger, outrage and impatience at the lack of online services. 

TSB has already said that it will recompense any money customers may have lost as a result of the outages. But, the reputational damage has been done - as has the disintegration of the trust TSB was finally starting to claw back following the 2008 recession.  

And it’s not just retail customers who’ve been affected. Businesses have also been impacted by these issues. From not being able to pay staff and suppliers to not receiving money owed to them, it’s caused huge issues in working capital for these companies; issues that could prove to be fatal to smaller businesses. 

In terms of the impact going forward, this has set a dangerous precedent in terms of large scale technological change. As mentioned, trust within the sector wasn’t exactly high to begin with. Now, following the TSB failings, will retail or commercial customers be willing to accept and accommodate a larger scale change programme at all? 

Moving with the times

Given the potential disruption Open Banking may bring - what can the banks and other interested parties do to advance change without losing customer trust and market share?

Firstly, we should mention that Open Banking hasn’t been a ‘big bang’ in terms of shaking up the industry. After all, it’s been live now for around 5 months. Awareness is still low, and the larger banks are only just starting to reach out to the public with new services that accommodate it. For example, HSBC has just launched its offering ‘Connected Money’. It’s an app that lets users see all of their financial accounts on one screen – no matter who they bank with.  Aside from this offering, there are only two other companies that are currently providing Open Banking services for users.

But just because the ‘killer app’ hasn’t been launched yet, it doesn’t mean that this initiative is going to fizzle out. In fact, experts are predicting the opposite and that once other banks and third-parties have got their offerings nailed, the growth of Open Banking and its acceptance into the mass-market is going to be exponential.  

Just because it’s looking like a slow-burner now doesn’t mean that companies can take their eye off of the ball in terms of delivering change. 

Shifting mindsets

The key for the larger companies to be able to accept and adopt the pace of change required once the dynamics of the industry have shifted will be to look at the way that change is delivered as a whole in their organisations.

Most financial institutions work on the basis of ‘comply or die’ – i.e. if change doesn’t go through the correct compliance processes, it will get canned. Or, the change will try and circumvent the red-tape – and may in the process open up risks to the company and consumer alike. There is also a huge preference for delivering things in-house, with costs and confidentiality being two biggest reasons given for doing so.

Now however, organisations are opening up to the idea of outsourcing such large change programs to smaller, more agile companies who have more expertise in the specific challenges being faced. 

It’s not an easy shift for them to make – especially since PSD2 and GPDR have such a strong focus on compliance. Trusting a third party to undertake the required compliance to keep consumers safe is not going to be an easy task for these larger banks. Decades of legacy process on top of process has created a superficial level of comfort that the more compliance there is, the more robustly risks are managed. 

But it’s this shift, firstly of mind-set and then of operations that is absolutely necessary if companies want to make sure they are on the front-foot once customer awareness of just what Open Banking can bring becomes mainstream. Time will tell as to who will react the fastest.