How will Revolut’s move into open banking affect us?

Despite current uncertainty, the financial services sector is experiencing transformative change year on year. Innovation in banking has traditionally been a cumbersome process, but these new players have changed how things are done, applying lessons learnt in other industries to keep established players on their toes.

Among these innovators is Revolut. The company had a busy start to the year, tripling its valuation to £4.2bn, making it the most valuable FinTech start-up in the UK. But perhaps more significant was the company’s move into open banking, news which went somewhat unnoticed.

The implications of this announcement cannot be overstated, having the potential not just to transform personal finance, but the economy as a whole.

Personal finance meets convenience

To begin, the move into open banking makes Revolut the first provider to be authorised as an Account Information Service Provider (AISP), meaning it can now securely use UK banks’ APIs (Application Programme Interface).

In layman’s terms, it means they can now act as a single, unified interface for all of an individual’s or business’s financial information. Playing into rising demands for convenience, it makes it possible to connect external UK bank accounts to Revolut, giving consumers and businesses a 360 view of their balances, transactions and everything related to banking within a single application.

The implications cannot be overstated. One-in-four UK consumers have one or more current accounts – when it had previously been a pain to manage multiple accounts across different banks, account types and locations, these pain-points are effectively eliminated. Open banking will encourage consumers to be more agnostic with credit cards and savings accounts. It could well spell the end of bank loyalty.

Opening up new possibilities

Revolut’s announcement made it a pioneer even among challenger banks. Now all eyes are watching to see if the system of open applications works effectively. And it’s easy to see why – theoretically, it will open the door for additional functions of AISP for other sectors besides banking.

In retail, we could see it applied to functions that have difficult relationships with acquirers and credit providers. For example, we could see the emergence of a single refund/credit company, delivery, or inventory buying application which looks at the entire market.

Here, it’s the digitally native challenger brands, similar to Revolut who are best placed to take advantage of these new functionalities. In contrast to high street retailers, these companies have fewer obstacles to innovation, enabling them to be much more agile when implementing new initiatives. Expect companies, like Asos, Boohoo and of course Amazon, to start testing the boundaries of what’s possible.

Prioritising security

While the announcement could be a kingmaker, it does come with risks. With APIs opened up to third parties, open banking makes organisations vulnerable to potential cyber adversaries as they’re no longer able to hide critical applications behind firewalls – so what would happen if they were to suffer a data breach?

The banking industry typically leads the way for security, but a huge amount of responsibility falls squarely on Revolut’s shoulders. After all, any stumble or misstep could result in severe financial and reputational fallout and halt open banking in its tracts. This means that API security is more critical than ever for the company to mitigate any potential threats.

All eyes watching

Revolut took a gamble by moving into open banking. With 2019 going down as the worst year on record for breaches resulting in exposed data, security is of the utmost importance.

Revolut’s announcement makes it clear that the retail banking model as we know it is fading away. Open banking provides consumers with long sought-after convenience and flexibility, giving them easy access to multiple bank accounts under one interface and eliminating the traditional pain-points. Whether or not they make it a success is difficult to say, but all eyes are watching to see if the project yields the hoped-for results.

By Richard Mathias, Senior Technology Architect at LiveArea