Former CEO of Anthemis, Nadeem Shaikh, is a veteran of the fintech sector and his career has evolved along with the industry. His latest venture, Neem Expontial, sees him pushing at the boundaries of Fintech to reach people who do not have bank accounts in the developing world: “Open Banking is the next paradigm shift in the global banking sector”, he says, “And the key to its success is building knowledge and trust of the opportunities it offers.” Open banking turns the existing banking world inside out so that rather all your banking information being held by your personal bank, it can be accessed by third-party payment services and financial service providers using application programming interfaces (APIs) to enable interoperability and networking between banking information and service providers who you need to pay or be paid by. So even if you do not have a bank account you can manage your money digitally and if you do have one it can be accessed and used much more easily and quickly. Your bank moves into the pale of your hand through your phone.
But to access all of this customers must open access to their data. Just 30% of respondents in a 2020 ING survey felt comfortable in choosing to share their data with companies. This might be an obstacle to the growth of the sector, but the popularity of open banking is expected to increase in all regions over the next year. Will reluctance to share data be a limit to growth?
The reality might be that without suitable awareness and education around security and data sharing, adoption may be limited. Real time and accurate data sharing allows for the creation of tailor made products and services, based on the specific needs of consumers and businesses, and as such the adoption of open banking benefits both providers and consumers. Without knowledge of the potential benefits, such as perennialized deals and offers, consumers are unlikely to share their data. Transparency is key to gaining trust, and consumers must be aware that their consent is necessary in order for their data to be shared. They own their own data; they are allowing access to it.
Regulation and consumer protections need to be considered when encouraging adoption of open banking. Customers need to feel confident in the security and safety of the system. Payment protection and purchase protection could be considered, as well as a consistent and common dispute management systems.
Regulation is also key to driving adoption; people will not share their data without sufficient return and in order for these returns to happen, the regulation of different industries must align. Firstly, this prevents the creation of duplicate open data, and secondly it allows consumers to fully benefit from consenting to share their data across multiple industries by benefitting from the intersection of, for example, open banking and open insurance, as well as each industry individually. Again, consumers will be reassured by consistent regulation, and awareness raising is crucial to driving adoption. “But it is vital”, says Nadeem Shaikh, “That regulation plays the role of enabler and supports educating consumers to the benefits of open banking”.
Research by credit spring has shown that 52% of people do not want to share their data. However, it should be considered that only half of Americans have heard of open banking at all. By being made aware of the benefits of allowing access to their data, people will be encouraged to adopt open banking. The onus is on the banks and merchants to create positive outcomes for the consumer, but equally they must address concerns about security whilst encouraging adoption.
In the UK, by July 2022, the CMA9 (high street) banks must implement variable recurring payments (VRPs) in order to enable the automated movement of money between accounts. This follows a ruling by the CMA (competition and markets authority). VRPs are most useful in case where speed of payment is the priority, and provides an accessible alternative to card payments. VRPs will remove barriers to adoption of open banking in the UK but what about the rest of the world and especially the developing world.
Nadeem Shaikh is confident: “The benefits of leap frogging generations of banking structures to enable the unbanked to have financial services based around VRPs is immense”. And there might be a paradox at the heart of the Neem mission that will enable its success. “If you have never had a bank account then the education and trust building conversation is different than if you have always had a bank account or you remember when you had to write a cheque and take into your bank. It is vital that we build trust but digital natives will be easier to bring on the open banking journey.” The benefits of bringing these previously excluded groups into the banked world are huge and will be a major driver of development. That is why Neem is beginning its mission in Pakistan.