Less fast and furious, more fast and friction(less)

June 5, 2018 | By Jason Lane

‘Where the future of money is built.’

This is the vision for the upcoming Money20/20 Europe event and it couldn’t be more pertinent. In a year in which the financial services industry is experiencing phenomenal change, there’s a certain restlessness felt by consumers and businesses as they grapple with the opening up of the financial ecosystem. There’s little doubt that the financial services sector is more buoyant and vibrant than ever before with the burst of new fintechs entering the scene. However, this energy and vitality is definitely rewriting some of the rules and nowhere is this more acute than with the open banking revolution.

With banks having to open up their customer data and payments infrastructure to third parties (at the customer’s request), we’re certain to witness increased competition in the marketplace as the challenger brands make a play for territory held by the traditional banks. This is bound to cause friction as consumers and businesses attempt to grasp control of the flow of data and power between banks and third parties.

However that got me thinking. Surely in an open financial ecosystem, where data and services are being exchanged, a degree of ‘friction’ is actually a positive thing? It’s somewhat ironic, I know, but there’s something paradoxically strange about friction. Too much and you hit resistance. Too little and you risk sliding into uncertainty. This conundrum couldn’t be more relevant than it is with the arrival of open banking.

There are some who feel open banking has limped into our consciousness, causing limited fuss along the way. However don’t be fooled. Open banking is steadily creating a new pace of change in the industry and as regulations continue to evolve, it’s clear that this is not the end, but rather the beginning of an exciting period of innovation.

But here’s friction point number one. Whilst there is open-mindedness towards open banking, consumers and businesses also expect to be kept safe, especially when their financial data is being traded in a much more open system. Trust challenges exist on both sides.

Then there’s the desire for consumers and businesses to want more personalised digital services. Cue friction point number two. The proliferation of user-friendly apps with their one touch access and intuitive navigation can make innovations in the financial services industry seem archaic by comparison. Consumers expect the same enhanced, individualised products and services when it comes to money matters but at the same time, are concerned about fraud and payment disputes.

And finally, consumers and businesses are increasingly attracted by colourful challenger brands when it comes to managing their money, but they also don’t want their financial data falling into the wrong hands. This third friction point, which arises when consumers and businesses seek to transact with new players whilst clutching onto the trust inherent in doing business with the established incumbents, means there is a discord in the process.

Mastercard is working hard behind-the-scenes to enhance trust in the system and facilitate interactions between banks and third parties to enable both to better serve consumers and businesses. From a directory of approved third party providers to sophisticated fraud monitoring services and a dedicated dispute resolution mechanism, we’re committed to delivering practical answers to the real challenges that could stop open banking from realising its full potential.

So, as we hurtle towards this open banking reality, it’s clear we need a healthy dose of friction to ensure there is trust in the system; but not too much so as to halt the dynamism and interplay between everyone in the open banking web.

Ultimately at Mastercard, we want our solutions to give banks and third parties peace of mind, so that they can focus their time and efforts on where they add most value – creating innovative user experiences. By removing these pain points, open banking really has a decent chance of taking off.

Jason Lane