API Banks Big Picture

Open Banking as an investment opportunity

Farhan Lalji, Director at Anthemis, spoke to The Fintech Times about Open Banking future

To most consumers, Open Banking is a big unknown. Before starting my new role at Anthemis, I too was oblivious to the topic, like many average consumers.

I’ve spent the last two months exploring every blog post and books out there (yes there are books well, one, actually, and it’s pretty thin), attending every conference or event, and talking to every person I could find who knows about the topic and the potential impact it will have on the way we bank.

It wasn’t until I started looking at Open Banking it an investment opportunity that the penny dropped: Open Banking will be massive, but it’s also going to be a while before we feel its true impact.

For the uninitiated, Open Banking is more than just the European Payments Service Directive 2 (PSD2). It is a movement beyond any single piece of legislation. Simply put, “Open Banking” is when banks move from owning the end-to-end relationship and experience we have with money to enabling entrepreneurs everywhere to reimagine what and how we do with it.

In this way, Open Banking enables finance to change how we engage with suppliers, friends, property, and other assets, and also how we engage with new technologies and movements like distributed ledgers and cryptocurrencies. So while today’s retail banking experience still feels like visiting Blockbuster…

Youtube, Netflix and Amazon are on the way.

Open Banking innovation will arrive in four waves:

First, infrastructure changes – whether compliance or capital-based innovation, the parties who will feel this wave the most will be institutions and corporations. This is where companies like TrueLayer, and marketplaces like what RBC is doing with IBM, are already emerging. The second wave will be simpler innovations for small numbers of banking “super users.” If you have more than two accounts with two or more banks, congratulations! You might see some value sooner than everyone else. The third wave represents what we can imagine but doesn’t yet exist. For example, imagine a payments integration where you can pay for a restaurant meal using your OpenTable or Deliveroo app in the restaurant, or unlock equity value in assets for peer-to-peer lending. These innovations are possible although difficult to implement today, but not for long.

The last Open Banking wave is perhaps the most exciting – interactions, products and services that we can’t yet imagine but will radically change our lives and our relationships with finance.

Financial services, firms and consumers of their products tend to agree that innovation hasn’t taken hold the way it has in other industries. The regulatory environment has everything to do with why, and that’s what makes Open Banking (and PSD2) so game-changing.

Just as our experiences with travel, entertainment, media and others verticals, the real opportunity with Open Banking is to speed up the transformation of a centuries old-industry into the modern one built for the digital age that consumers deserve today.

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