In September 2016, we visited Nationwide’s offices in London to have a wide-ranging discussion with its head of insight and innovation Matt Cox about the provider’s open banking strategy and other subjects.
Firstly, can you tell me a little bit about your background?
I joined Nationwide 18 years ago, and have been involved with major change programs in retail and, over the last 10 years, in digital. I have managed and implemented internet bank replacement projects, mobile banking, and other digital propositions.
I am currently responsible for insight and innovation at Nationwide. I track market trends in areas like open banking and provide insight on major technology trends such as bots, AI, and blockchain. We have a team that manages idea creation and proposition development, as well as an innovation lab. We are increasingly engaged with accelerator programs and have collaboration partners, both in the UK and other regions.
What are your views on digital-only providers?
One of the things that digital-only providers will struggle with is how to provide a human service. Plenty of evidence suggests that consumers, even those in younger lifestages, still want human service. Digital providers may have call centers, but this is not the same as seeing the whites of someone’s eyes and have them explain to you how to use your first current account.
With our latest student current account, two thirds of the uptake has been through branches, despite having a good online account opening process. Even in this age group, customers want to have a conversation where it can be explained to them how a product works and what features they get.
Turning to open banking, Nationwide is part of the Open Banking Development Group (OBDG). Can you give any insight on what it is doing and what its terms of reference are?
We know that consumers use, on average, five or six different providers for their financial products, so why isn’t it a good thing for consumers to be able to access these from one place and help them manage their money through a single entity? From a customer’s perspective, this can only be a good thing.
I think it will drive increased competition, which if you’re an organization that prides itself on service and doing the right thing for customers, is a positive thing.
But there is a challenging timeline. The regulations have emerged from different places – the Competition and Markets Authority (CMA), PSD2 – and it’s taken a long time to get clarity. There is no specified approach, so providers need to come together and collaborate, and that’s what the OBDG is about. It’s aiming to define the precise standards that will meet the CMA’s remedies and PSD2 requirements.
And there are other areas for which standards will have to be defined in a world of open banking. For example, how will security work when you are making a payment? If you are making a payment from one provider to another and it fails, what happens? How do you audit who did what, and when? Who is accountable for the error, and who should the customer call?
These are the issues that, over an 18-month to two-year timeline, we have to understand, agree an approach, define a standard, and then implement.
Will the API standard offer both read and write capability?
Yes, that is the regulatory requirement. At the heart of the CMA’s remedies is open access to transaction information, and at the heart of PSD2 is the open execution of payments. So we are moving away from account aggregators using screen scraping to access data, to a much more secure and customer-friendly way of accessing data. Under PSD2, you will be able to sweep money from one provider’s account to another to pay off a credit card, for example. This sounds simple, but the detail of the execution will be tough, and there isn’t much time to do this.
There is a risk that, if your customers use third-party aggregators, you lose control of the relationship. So where does this leave Nationwide?
In the long term there are significant implications, not just because of regulation, but because of fintech providers entering areas that have traditionally been handled by banks. As a result, there is an increased risk of disintermediation from the customer relationship, and that over time you become increasingly utilitized and end up bearing the cost without the ability to drive value.
Whether you see this as a risk or an opportunity depends on your perspective. Trust is a massive factor for consumers, so how do you establish and maintain trust? This is very difficult to do through technology only: if something goes wrong, who do you speak to? But if you are good on service and have high levels of trust, you should view this as an opportunity.
Will digital-only providers have more success if they focus on particular niches rather than trying to capture the whole banking relationship?
Over the last five or six years, where alternative and emerging providers have gained traction in banking services, it has been around the fringes of the value chain. Payments has been huge, with Venmo, PayPal, and several others. What we are now seeing, with the emergence of Apple Pay and Samsung Pay, is a very different landscape. These providers are trying to capture the single way to pay – online, in-store, or to friends – through the phone. And you can debate how much of a threat this is to banks. There is also lots of activity in unsecured lending.
But at the heart of banking, there hasn’t been a huge amount of change yet. This is not to say there won’t be, but there are significant barriers. It comes back to trust and service, and the [mistaken] assumption that customers don’t need to talk to people.
Does Nationwide have a vision for open banking and what its proposition will be?
The devil is in the detail with the implementation. Our number one priority is to collaborate with the other major providers to define the standards that will make this possible. How is security going to work? How is audit going to work? What will happen when things go wrong?
And beyond this?
Through our innovation team we are exploring lots of different propositions, including things that will have better outcomes for customers than if we approached this purely as a regulatory issue. Over the next few months we will start to put meat on the bones.
You said earlier that you are starting to collaborate with fintechs. Do you have any plans to co-create new products that you will host on your platform?
We have already worked with many different fintechs, and we will do more and more of this. There is a huge amount of talent out there and they have all sorts of great ideas, and if we want to be quicker and more agile at implementing ideas, we can’t think we can do it all ourselves in-house.
We will be doing a lot more to engage with fintech across the globe, not just in London. The more we understand about the technologies that are emerging, the more opportunities we will have to find things that are right for our customers. For example, we are collaborating with Umpqua Bank in the US to get a better understanding of emerging technologies on the US West Coast.
At the heart of this is that if we have a better understanding of all of your financial comings and goings, then we can help you to make better decisions.
For more on open banking, please read our new report Open API Banking: Defining the Potential and Opportunities.
By Daoud Fakhri, Prinicipal Retail Banking Analyst