Let’s look at the current financial landscape
The core components of the banking ecosystem have been shaken. They are challenged by new players who can leverage consumer data, advanced analytics, and new digital technology more efficiently. New players have the ability to make decisions on the go, allowing them to react quicker than traditional banks.
As discussed in our previous blog “Let’s be open about Open Banking”, we’re witnessing a huge shift towards “multi-banking”. I.e. that the average customer has 3-4 different banking relationships with different providers yet there is nowhere to aggregate all this information on one platform…. until now.
This is the main issue Open Banking sought out to tackle
Banks are sitting on vast amounts of data, yet they are not able to leverage it effectively to drive their business forward.
Why? probably because they only harvest data within their ecosystem, yet with multi-banked customers being the norm, that data does not offer a true representation of a customer.
Notably, banks have traditionally viewed the custody and protection of their clients’ customers’ data as a responsibility, more akin to a stewardship role versus an asset to be analyzed and understood to offer a more personalized and relevant service to their customers. Data sharing in financial services has traditionally been extremely laborious, with little real benefit to the user. It tends to be risk- and permission-based, with required audit trails, and subject to heavy regulation and risk management. If done well, however, it can deliver true value to users in a highly secured fashion through enhanced know-your-customer capabilities, identity validation, and fraud detection.
How can banks monetize on Open Banking?
Open banking solutions are not just beneficial to customers, but also help banks and other financial institutions enhance their service offerings, to improve customer loyalty, provide better richer engagements, and ultimately increase their overall revenue.
In this new API (Application Programming Interface)-driven economy, banks and financial institutions need an open-mindset to co-exist with open banking. That means, embracing the change and accepting that open banking brings about huge benefits to customers, Banks that do this, will ultimately win, by offering their customers what they want, versus offering customers what banks have. Most banks have completed the ‘compliance’ phase of open banking regulations and are now within the ‘Execute’ phase, where we will be seeing many businesses coming together to co-create new business models.
The name of the game is “collaboration”, not just with FinTechs but across disparate industry verticals such as Healthcare, Insurance, etc., to create new ecosystems using Open Banking APIs, that accelerate the creation of newer, more intimate services to customers. Speed of service is another major factor to retain and grow customer loyalty.
What can this model achieve for the banks in the long run?
Improved digital agility— Improved digital infrastructure enables more data, richer data, and more importantly the ability to analyze it to improve the customer experience. It’s a new way of introducing technology into the industry, keeping things fresh and up to date.
Customer engagement & loyalty— While Customers will have a selection of financial tools that will enhance their banking experience. Banks will have access to an entirely new way of engaging with customers. Giving them better services than ever before, at a lower cost and in a more timely fashion
Marketplace banking— Aggregation and richer data insights are driving marketplace banking. A rich platform of third-party services targeted to the right customer at the right time, based on their aggregated data.
To conclude, banks who embrace change, whilst leveraging the rich vein of data open banking makes available will succeed in being the winners in this race.