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What does 2020 hold for Open Banking?

July 7, 2021

As 2010 and beyond saw the advent of Open Banking, 2020 will be the decade for sustained and conscious maturation of the digital banking world.

Traditional banking has been in need of a shake-up for years, and 2019 was the year Open Banking found its feet, ushering in a whole new era of digital disruption.

As we wrap up the first month of 2020, we thought we'd assess how the phenomenon of Open Banking will impact us in the coming years. There's no doubt that it will completely revolutionise the financial industry: it's only a matter of time, and a question of how.

1. What we know for sure: Open Banking is changing everything.

By shifting ownership of financial data from banks to consumers, Open Banking is bringing an entire industry up to speed with the connected world. Within a year, it has already given rise to a host of new players and propositions that are bringing transparency, simplicity and control to the consumers' banking experience.

So far, the influence of Open Banking has been most materially felt through the introduction of neo-banks like Monzo, Mettle and Revolut, and the alternative financial reality they are enabling. Starling Bank was built with Open Banking in mind from day one, and has set its sights on democratising access to all sorts of financial services. CEO Anne Boden believes that the future value of banks lies in their role as marketplaces, "connecting people to providers of everything from student loans to pensions based on your personal and business profile." Starling's vision is to become the first holistic one-stop-shop for your financial life – exciting news for us, as a direct integration that would simplify tax and accounting even further.

2. The big opportunities: Finding the white space

Beyond neo-banks, Open Banking is facilitating innovation in the FinTech space that simply wasn't possible before. With third-party access to consumer's financial information comes endless ways to enhance their financial autonomy and decision-making power: Klarna is enabling delayed payments, Tully is tackling tailored debt management, Emma is helping people budget better, and Ember is automating the accounting and tax process for single-person businesses.

However, success remains a challenge, not least due to the abundance of startups in the space. Those with a clear and robust path to profitability – no matter how early stage they are – will find themselves in a stronger position than those without. And according to Ross Sleight, Chief Strategy Officer at digital product accelerator, Somo Global, product differentiation will be more important than ever. "Rather than focusing simply on being the easiest to use, stop and interrogate where the left-of-centre needs really lie," was his sound advice at this year's FinTech Connect event in London, the largest gathering of industry leaders and game-changers. In other words, zig when everyone else is zagging; focus less on customer experience and more on solving an unresolved need. That might sound easier said than done but the white space is definitely there: as Sleight points out, "47% of the UK population don't feel confident in making a financial decision, and 27% don't use any form of online banking." People are looking for simpler more reassuring ways to manage their money, and the opportunities to create this may lie outside services traditionally offered by banks.

3. The biggest challenge: Data protection & misuse

But with high potential for reward comes potential for risk, too. In today's climate of data watchfulness, the key challenge for Open Banking lies in protecting the integrity of its data practices – and in reassuring consumers that their data remains their own. Startups with unclear paths to profitability will inevitably end up exploiting users information for cross- and up-sell opportunities, simply to please investors. Even established players are struggling with the issue: Revolut's recent privacy policy update (which requires users to opt out of data sharing, rather than opting in) caused a stir, raising concerns around best practice.

4. Uncharted territory

When it comes to Open Banking, what we find most interesting is the potential for disruption in the accounting space. Whilst there has been much talk of incumbent banks having to adapt to modern times, we've seen far less evolution from traditional accounting platforms. Everyone is neglecting one of the most important FinTech verticals: the automation of tax – and that's where we come in.

Ember is the future of small business accounting and tax management – a progressive system purpose-built for owners rather than accountants. In the way that Starling and Atom have stripped away the complexity of traditional banks, we lighten the load of accounting and tax for contractors and small business owners everywhere. Powered by Open Banking and machine learning, Ember offers the full spectrum of accounting services for the cheapest price in the industry.

Open Banking is at the start of its journey towards increased simplicity and transparency for users – and so are we.

Simple software that takes care of all your accounting and tax automatically.

Daniel Hogan

Daniel is a Deloitte-trained, fully qualified Chartered Accountant with experience in the finance software space. It was during his tenure managing a finance system in the UK that he grew dissatisfied with the lack of synergy and automation in the space, compelling him to co-found Ember.