European banks are struggling to generate returns above their cost of equity, and the rise of 'open banking' threatens to disrupt traditional banking models by requiring banks to share customer data. This regulatory change, driven by the EU's PSD2 directive and UK CMA measures, could increase competition and innovation by allowing third-party providers to access customer information with consent, potentially eroding banks' revenue from services like overdrafts. As consumer demand for digital solutions grows, banks must adapt to new technologies and customer preferences to remain relevant in a rapidly changing financial landscape.

1. How to flourish in an uncertain future
Open banking

2. European banks have been unable to generate returns above their
cost of equity since before the global financial crisis
European banks' return on equity (RoE), %, analysts' estimates, 1995 – 2019E
Source: Deutsche Bank analysts' estimates, March 2017; European Banking Authority, January 2017; Deloitte analysis
-5%
0%
5%
10%
15%
20%
25%
2019E2018E2017E2016201520142013201220112010200920082007200620052004200320022001200019991998199719961995
Cost of equity (8-10%)

3. Banks’ value chain is
simultaneously coming
under threat from a
range of new entrants
The 11 clusters of innovation in financial services
Source: The Future of Financial Services – How disruptive innovations are reshaping the way financial services are structured, provision
June 2015, p.12. See also: http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf
Inves
tm
ent management Capital raising
Depositsandlending
InsurancePayments
Marketprovisioning
Emerging payment rails
Mobile money
Cashless world
Strategic role
of data
Crypto currency
P2P FX
Integrated billing
Mobile payments
Streamlined
payments
Insurance disaggregation
Connected insurance
Sharing economy
Autonomous vehicles
Digital distribution
Securitization and
hedge funds
Internet of Things
Advanced sensors
Wearable
computers
Alternative lending
Shifting customer
preferences
Niche, specialised
products
P2P lending
Alternative
adjudication
Virtual
technologies
Mobile 3.0
Third party API
Crowdfunding
Reduced
intermediation
Customer
empowerment
Virtual exchanges
and smart contracts
Alternative
due dilligence
Empowered investors
Process externalisation
Advanced algorithms
Open source IT
Capability sharing
Cloud computing
Automated advice
and management
Social trading
Retail algorithmic
trading
Automation
of high value
activities
Streamlined
infrastructure
Smarter, faster machines
New market platforms
Artificial
intelligence/machine
learning
Big data
Machine readable news
Social sentiment
Market
information platforms
Automation data
collection and analysis
The 11 clusters of innovation in financial services
Source: The Future of Financial Services – How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed, World Ec
June 2015, p.12. See also: http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf
Inves
tm
ent management Capital raising
Depositsandlending
InsurancePayments
Marketprovisioning
Emerging payment rails
Mobile money
Cashless world
Strategic role
of data
Crypto currency
P2P FX
Integrated billing
Mobile payments
Streamlined
payments
Insurance disaggregation
Connected insurance
Sharing economy
Autonomous vehicles
Digital distribution
Securitization and
hedge funds
Internet of Things
Advanced sensors
Wearable
computers
Alternative lending
Shifting customer
preferences
Niche, specialised
products
P2P lending
Alternative
adjudication
Virtual
technologies
Mobile 3.0
Third party API
Crowdfunding
Reduced
intermediation
Customer
empowerment
Virtual exchanges
and smart contracts
Alternative
due dilligence
Empowered investors
Process externalisation
Advanced algorithms
Open source IT
Capability sharing
Cloud computing
Automated advice
and management
Social trading
Retail algorithmic
trading
Automation
of high value
activities
Streamlined
infrastructure
Smarter, faster machines
New market platforms
Artificial
intelligence/machine
learning
Big data
Machine readable news
Social sentiment
Market
information platforms
Automation data
collection and analysis
Source: The Future of Financial Services – How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed, World Economic Forum and Deloitte, June 2015,
p.12. See also: http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf

4. A new development, ‘open banking’, is about to take disruption one
step further by requiring banks to share customer transaction data
The ‘opening up’ of customer transaction data
Source: Deloitte analysis
‘Closed’ banking ‘Open’ banking
Customer,
client, bank
product data
Bank
Price comparison websites
Customers Third-party providersCustomers
Bank
Customer,
client, bank
product data

5. This development has been driven by regulation; both at an EU level,
in the form of PSD2…
Institutions outlined in PDS2
*PSD2 implemented into national laws and regulations in January 2018; the regulatory technical standards for XS2A are expected to follow, c. November 2018
Note: Both PISPs and AISPs must be registered payment service providers (PSPs)
Source: The Second Payment Services Directive (PSD2) – A briefing from Payments UK, Payments UK, July 2016.
A TPP operating as a PISP and an AISP could threaten banks’ ownership of the user interface, and thus control of the direct customer relationships
PISP
Payment Initiation Service Provider
PSD2 allows regulated third-party
PISPs to initiate payments directly
from customer payment accounts
so long as they have the customer’s
consent.
AISP
Account Information Service Provider
Regulated third-party AISPs can access
customer data (with the customer’s
consent) to provide an overview of a
customer’s payment accounts with
different banks in one place
(e.g. a mobile app).
ASPSP
Account Servicing Payments Service Provider
An ASPSP is the institution holding a
customer’s “payment” account.
“Payment” accounts include current,
e-money, instant access savings, credit card
accounts and current account mortgages
TPPs

6. The CMA is requiring the UK’s largest banks to implement the Open Banking Standard recommended by the Open Banking Working
Group – to “adopt and maintain common API standards”, which are not mandated under PSD2
This will provide:
Open access to open data (e.g. pricing and product information, for use by customers and price comparison websites) by 31 March
2017.
Controlled access to customers’ current account data (e.g. third-parties accessing customers’ account information with their consent)
by the implementation date for PSD2 in January 2018.
…and at a UK level, with the CMA mandating the UK’s largest banks
to adopt the Open Banking Standard
1
2
Source: Retail banking market investigation final report, Competition and Markets Authority, 9 August 2016; Deloitte analysis
•• All third parties granted access to customer accounts in PSD2 will have access under the CMA regulation
•• Third-party access to customer accounts will be broader than in PSD2, based on whitelisting criteria (e.g. price-comparison
websites (PCWs) will likely be included)
•• However, while PSD2 opens up all payment accounts, the CMA’s measures mandate the opening up of personal and
business current account data only

7. The CMA is primarily concerned with improving competition,
but also hopes to stimulate innovation
Pro-competition agenda Potential third-party propositions
Product and pricing transparency Unbundling of products (e.g. current accounts and overdrafts)
Personalised comparability across providers (including through TPPs and
PCWs) by sharing transaction data
Automatic transfers between current accounts to those paying higher
interest or about to enter overdraft (with customer consent)
Eroding incumbency advantage of exclusive access to data (e.g. for SME loans)
Predictive cash flow modelling, savings and budgeting tools, including
automatic lines of credit if over-budget
Facilitate growth of an intermediary sector
Using customer transaction data to provide personalised offers and
rewards at merchants
The CMA believes that its measures will:
•• Make it easier for customers to switch providers, thus increasing competition
•• Facilitate the emergence of a large scale of new service providers with different business models offering innovative solutions
Note: Many of the potential third-party propositions already exist, but require customers to share bank log-in details, which may remove, or be perceived to remove, guarantees against fraud.
Source: Retail banking market investigation final report, Competition and Markets Authority, 9 August 2016; Deloitte analysis.

8. UK regulators have long attempted to increase competition, but
current-account switching remains low
Proportion of customers who have switched supplier in different sectors in the last three years (as of February-March 2015)
Question: “In which, if any, of the following have you changed supplier within the last three years? If you do not have one of these services please say so.”
Source: Personal Current Account Investigation, GfK NOP, April 2015, p.44.
Current account
Mortgage
Savings accounts/cash ISAs
Mobile phone network provider
Internet provider
Energy
Car insurance
8%
9%
13%
23%
26%
31%
45%

9. ‘Open banking’ could erode banks’ overdraft revenues, for example,
which accounted for 34 per cent of current account revenue in 2014
Analysis of personal current account (PCA) revenue, £ per main PCA, 2014
Source: Retail banking market investigation final report, Competition and Markets Authority, 9 August 2016, p.104.
See also: https://assets.publishing.service.gov.uk/media/57ac9667e5274a0f6c00007a/retail-banking-market-investigation-full-final-report.pdf
£34.86
Net revenueNet value
of funds
Other payments
to customers
Interest
payments
to customers
Other
receipts (net)
Monthly
account fees
Interchange
fees (debit card)
Foreign ATM
and debit
card fees
Unarranged
overdraft and
unpaid item fees
Arranged
overdraft
£24.45
£8.67
£17.01
£21.24 £3.53 -£18.17
-£2.99
£88.03 £176.62

10. Advances in technology and the evolution of the digital landscape are
enabling these regulatory interventions
Regulatory drivers
Non-regulatory
enablers
PSD2
Open Banking Standard CMA
Open Banking
Rise of application programming
interfaces (APIs)
Ubiquity of consumer technology
The FinTech boom
The ‘always-on’ web Low-cost enterprise technology

11. From a consumer standpoint, smartphone penetration has increased
dramatically in recent years
UK smartphone penetration, 2012-2016 (%)
Source: Deloitte Global Mobile Consumer Survey 2016 – UK Cut, There’s no place like phone, Deloitte, 2016, p.26
20162015201420132012
52%
62%
70%
76%
81%

12. ‘Open banking’ will not be achievable without a strong buy-in from
consumers, whose adoption of digital solutions is already relatively high
Mobile app penetration by age group (%), GB consumers
Base: All GB adults (nationally representative), 2,050
Question: Do you have a mobile banking application ('app') from your main bank on your smartphone? By main bank,
we mean the bank that provides your primary current account (e.g. the account into which your salary/income is paid).
Source: YouGov plc 2016 © All rights reserved, Deloitte analysis
55+45-5435-4425-3418-24
62% 63%
52%
37%
18%
Overall 40%
Mobile app penetration by annual turnover (%), GB SMEs
Base: All GB SME senior decision makers (nationally representative), 1,003
Question: Do you have a mobile banking application ('app') from your main bank on your smartphone? By main bank,
we mean the bank that provides your primary current account (e.g. the account into which your salary/income is paid).
Note: Chart does not show the following categories: "First year of trading", "Don't know", "Prefer not to answer",
which accounted for 20, 37 and 79 respondents respectively.
£10 million or more£1 million - £9.9 millionLess than £1 million
39%
49%
62%
Overall 45%

13. Digital channels (such as laptop, tablet and smartphone) are now the
first port of call for customers’ day-to-day banking needs
Preferred channels for banking services (%), GB consumers
Base: All GB adults (nationally representative), 2,050
Question: Which, if any, of the following is/would be your most preferred choice for each of the following banking services?
Note: Percentages shown in the "digital" category are the aggregate of consumers choosing either "Banking via PC/laptop",
"Banking via tablet" or "Banking via smartphone" as their preferred choice for each banking service. Percentages for each
banking service do not total 100% as chart does not show the following options: "None of these", "Don't know".
Source: YouGov plc 2016 © All rights reserved, Deloitte analysis
Base: All GB SME senior decision makers (nationally representative), 1,003
Question: Which, if any, of the following is/would be your most preferred choice for each of the following banking services?
Note: Percentages shown in the "digital" category are the aggregate of SMEs choosing either "Banking via PC/laptop",
"Banking via tablet" or "Banking via smartphone" as their preferred choice for each banking service. Percentages for
each banking service do not total 100% as chart does not show the following options: "None of these", "Don't know".
Digital Branch ATM Telephone Digital Branch ATM Telephone
0% 20% 40% 60% 80% 100%
Applying for a mortgage
Opening a current
account
Applying for a loan
Requesting an overdraft
Applying for a credit
card
Making an international
payment/transfer
Checking my balance
Making a domestic
payment/transfer
Preferred channels for banking services (%), GB SMEs
0% 20% 40% 60% 80% 100%
Applying for a mortgage
Requesting an overdraft
Opening a current
account
Applying for a loan
Applying for a credit
card
Making an international
payment/transfer
Checking my balance
Making a domestic
payment/transfer

14. UK consumers are ready to embrace change: given the right incentives,
mobile banking app users are primed to switch to a mobile-only bank
Factors that would persuade people to switch to a mobile-only bank (%), UK consumers with a mobile banking app
Base: All GB adults with a mobile banking application ('app') from their main bank on their smartphone (nationally representative), 805
Question: Please imagine that you were considering whether or not to switch your primary current account, from your main bank to a mobile-only bank that offered a full suite of banking products. If you have already done this,
please think about what made you switch. On a scale of 1 to 5, where 1 is "Not at all important" and 5 is "Very important", how important would each of the following factors be for you in persuading you to switch? By main bank,
we mean the bank that provides your primary current account (e.g. the account into which your salary/income is paid). Note: Chart shows proportion of respondents selecting 4 or 5 for each category.
Source: YouGov plc 2016 © All rights reserved; Deloitte analysis
A community of users via social media
The provision of financial services products from third parties
Accessing the app through biometrics alone
Better budgeting tools and better predictive tools
A more personalised service (e.g. tailored deals, offerings, customisable app, etc.)
The mobile banking app being easier to use
Greater numbe of banking related actions through the mobile banking app
Better customer service over the phone
Pricing that is more trasparent
Greater rewards (e.g. discounts at retailers, cashback, reward points, etc.)
Better returns 68%
58%
58%
56%
52%
49%
40%
36%
34%
29%
19%

15. Given the context of generally low engagement and limited real-life
examples, there is consumer demand for new value-added services
Appetite for value-added mobile banking services (%), GB consumers with a mobile banking app
Base: All GB adults with a mobile banking application ('app') from their main bank on their smartphone (nationally representative), 805
Question: Which, if any, of the following additional (value-added) services would you want your main bank to offer via its mobile banking app? (Please select all that apply). By main bank, we mean the bank
that provides your primary current account (e.g. the account into which your salary/income is paid). Note: Chart excludes the following options: "Other", "Don't know". "Overall" indicates the proportion of
respondents selecting at least one of the value-added mobile banking services listed.
Source: YouGov plc 2016 © All rights reserved; Deloitte analysis
I would not want my bank to offer any additional
services via its mobile banking app
The ability to receive personalised financial/ investment
advice based on my personal transaction data
The ability to receive personalised offers/ deals from
retailers based on my transaction history
The ability to compare prices of different products from
different providers offering personalised offers on
products
The ability to apply for loans, mortgages or credit cards
using personal transaction data to get better deals
The ability to use accounting software which would show
a monthly roll-up of all my expenses across
different accounts
The ability to use personalised budgeting/ money
management tools
The ability to view and manage all my accounts from
different providers
Overall46%
29%
21%
20%
19%
19%
18%
15%
39%

16. Consumers are also relatively open to using an interface provided by a
non-traditional provider to access their banking services
Trust in organisations to provide a mobile banking interface (%), GB consumers with a mobile banking app
Base: All GB adults with a mobile banking application ('app') from their main bank on their smartphone (nationally representative), 805
Question: Please imagine that each of the below types of organisation provided a mobile app that allowed you to manage your financial accounts and services, including your primary current account…
On a scale of 1 to 5, where 1 is "Would not trust at all" and 5 is "Would trust entirely", how much would you trust each of the following types of organisation to provide a mobile app that allowed you to
access and manage your financial accounts and services (e.g. bank accounts, credit cards, loans etc.)? Note: Chart shows proportion of respondents selecting 4 or 5 for each category.
Source: YouGov plc 2016 ©All rights reserved, Deloitte analysis
A new mobile bank
A telecommunications company
A global technology firm
An online retailer
A traditional retailer
A digital payments provider
14%
23%
29%
31%
43%
49%

17. Other FS and
Retailers
Insurers
Fund
FinTechs
C
hallenger
Incumbent
non-FS firms
managers
banks
banks
Marketplace
interface
Open APIs
• Aggregation (all financial products at different
providers available via one interface)
• Price comparison via the app
• Budgeting and money management tools
• Several FS providers continually compete to
offer customers tailored, good-value products
• Financial optimisation e.g. moving funds to
accounts paying the highest rates
(with customer consent)
• Give customers insight into how best to
optimise their finances
We believe the long-term future is one where banking products, services
and functions are opened up to third parties – or ‘marketplace banking’
Marketplace banking
Source: Deloitte analysis

18. Third-party distribution
Third-party
distribution
Incumbent
as supplier
Banking asa
m
arketplace
Incumbent bank distribution
Incumbentbankproducts
Third-partyproducts
Incumbent
as utility
Incumbent as
full-service provider
Incumbent
as interface
Incumbent bank
products
Incumbent bank
distribution
Incumbent bank
products
Third-party
distribution
Third-party
products
Incumbent bank
distribution
Third-party
products
Incumbent
We believe banks have four broad, non-mutually exclusive, strategic
options, two of which involve losing control of the customer interface
Strategic choices for UK incumbent
retail banks in a marketplace
banking landscape
Source: Deloitte analysis

19. What skills and capabilities are needed will banks need in order to
provide a winning ‘marketplace banking’ interface?
Skills and capabilities Who will win?
Acquiring and harnessing customer
data in innovative and more
individually tailored propositions
Incumbent banks could be in a position to win, owing to:
•• Incumbency advantage
•• Strong, trusted brands
•• Financial expertise
However, a number of other organisations may be in a position
to leverage their strengths to win in this space, including:
•• Tech giants
•• FinTechs
•• Price comparison websites
•• Digital payment providers
A shift in culture towards a ‘fail fast
and learn quickly’ mentality and an
agile way of working
Learning to operate in a shared
ecosystem with FinTechs and other
tech-enabled firms

20. To access the full Open banking: How to flourish in an uncertain future report, please visit Deloitte.co.uk/Flourish
You can also access further insight and analysis regarding the future of banking at Deloitte.co.uk/FutureBank
and join the debate on social media at #FutureBank

21. This publication has been written in general terms and we recommend that you obtain professional advice before acting or
refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to
any person acting or refraining from action as a result of any material in this publication.
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