The emergence and adoption of advanced technologies caught the banking industry by a surprise. After decades of being able to dictate the products, services, and channels the customer would use, the consumer took control of the relationship almost overnight, expecting the same seamless experiences offered by Google, Facebook, and Netflix. Some would therefore argue that never has there been a time of more excitement, or potentially a greater opportunity, in banking.
Without the legacy technology and outdated processes of a traditional financial institution, fintech firms quickly identified the gap within the banking sector and have started leveraging consumer data, advanced analytics, and digital technology to fundamentally transform the industry.
The market has matured at an unprecedented rate, with the MENA fintech market projected to be valued at $2.5 Billion by 2022. Today, FinTechs are experienced, empowered by easy access to technology, and extremely well-capitalized. But, while it is clear that the digital revolution in financial services is already underway, what will the future of FinTech look like? And what role does Open Banking play in this?
Open Banking allows the sharing of financial information, electronically and securely, with the consent of the customer. By allowing access to this data to licensed providers through an open API (application programming interface), Banks and FinTechs can develop new apps and services that are tailored to the customers’ needs.
And while APIs are not new to banking and are nothing more than a tool used to allow software applications to communicate with one another, they do provide a new gateway for innovation given that Banks across the world are opening up their APIs to licensed third-party providers. For that reason, you don’t need a crystal ball to predict that the future of banking is being driven by open business models and open APIs that are pillared against the spirit of collaboration and partnerships.
Therefore, let’s take a look at how increased collaboration between banks and Fintechs is shaping the future of the industry:
- Personalized financial products and services
End-users can benefit from more personalized services that are based on the analysis of their data related to their financial habits and behavior.
Here’s an example: Ali has $3000 that is sitting idle in his current account, which he is unlikely to spend based on his monthly financial behavior. Through an analysis of his spending, an Open Banking platform sends him a notification suggesting that through moving money from his current account to a fixed deposit account, he can earn 1.5% on top of that.
There. Banking made easy.
- New Monetization Models
Capturing the right opportunities, and early enough, will enable banks to grow their balance sheets through productizing and monetizing an array of core financial services. Making banks’ APIs attractive to developers could mean driving new business through their apps. In addition, high-friction elements of the current banking value chain that today require large efforts for low returns (e.g. customer interface) could tomorrow be pooled with competitors, outsourced to shared-service startups, or bought off-the-shelf as APIs and incorporated into existing operations at a minimal cost.
In all of the monetization models, partnerships are key.
- Banking as A Lifestyle
People need help from their financial institutions for varying reasons at specific times in their lives. Knowing this, the products and services banks offer to satisfy those needs at those specific times should be personal and timely. The overlap between analyzing consumer data, high-touch services that anticipate needs, and new digital banking features is the driving force behind the lifestyle banking concept.
Lifestyle banking goes beyond simple digital tools to check balances, process transfers, and issue payments. It weaves financial institutions into consumers’ lives on an everyday basis by helping them make better financial decisions for every aspect of their lives.
For more information on what Open Banking is, click here