During this period, UK retail banks have also been facing increased competition from innovative financial technology firms (‘FinTechs’) focusing on niches within the retail banking value chain. Such firms have been enabled by advances in technology and a favourable UK regulatory stance towards them – the same factors that are now facilitating the entry into the market of mobile-only banks looking to compete directly with the incumbents.
That’s not all. Regulation has been concurrently driving what we believe will bring about a revolution in UK retail banking – open banking. In this development, regulators are seeking to drive increased competition and innovation by opening up customer banking data to third parties. This is taking place at two levels:
- across the EU, in the form of the revised Payment Services Directive (PSD2);
- in the UK, with the Competition and Markets Authority(CMA) mandating the UK’s largest banks to adopt theOpen Banking Standard.
Opening up bank data carries an inherent threat of commoditisation for incumbent banks. This is because it potentially enables third parties to own the primary customer relationship, by allowing accounts from different providers to be accessed via a single interface that isn’t necessarily owned by an incumbent. It also potentially heightens competition by enabling more personalised comparisons between accounts held at different providers.