Opening Doors to New Opportunities: En Route to Mass Adoption of Open Banking

As more and more customer-centric businesses have started marching towards a cross-industry collaborative ecosystem, the open banking wave – pivoting on the free movement of customer financial data – has taken the fintech world by storm. The Competition and Markets Authority (CMA) mandated open banking (aka PSD2) across UK and Europe in January 2018, thereby changing the rules of data sharing in banking forever. Driven by technology, regulatory, and competitive dynamics, open banking pulled banks into the API economy, making customer data available to non-banking third parties. The potential revolution is fueled by the possibility of data democratization leveling the playing field for all businesses and mitigating fraud in the industry.

But reality often falls short of dreams. Open banking’s future is subject to banks winning the trust of customers, overcoming the fear of losing customers, and, more importantly, satisfying the unimpressed regulators. Inevitably, the concept of open banking is intensifying the competition and raising the stakes for everyone in the industry. Clearly, banks are not happy, especially when non-traditional players pose a threat to existing revenue streams and loss of direct customer relationships. However, four years since its inception, open banking remains a black box for many, despite the growing adoption. What is limiting banks from delivering the open banking grand vision of providing customers with actionable insights and, in turn, the freedom of choice in the truest sense? Lack of data standardization, unconvinced regulators, and customers’ lack of trust and data safety are some of the pressing challenges that banks need to address. Here are a few things that banks must figure out:

• What does open banking mean for their bank?
• What will help them retain customers and not lose them to traditional and new competitors?
• What changes in the technical architecture are required to support this new business model?
• What capabilities will help them differentiate and stay ahead of the traditional and new competitors?

Are Banks Unlocking the Value of Open Data?

To start with, banks and financial institutions must view open banking as more than just a regulatory burden. High-street banks with large balance sheets stand to gain the most by adopting open banking standards, allowing them to collaborate and compete with the digital-only cloud-native neo-banks and new-age financial institutions.   

Open banking is a powerful way to leverage the data economy for fostering financial inclusion and social wellbeing. At a time when customer experience is the key driver and KPI for most successful businesses, banks should replicate this model by designing products and services that optimize consumer engagement and utility. As the trends move towards embedded finance and embedded banking, end-consumer experience and behavior will dictate key changes for banks. The future of banking lies with those who can improve customer experience by leveraging the various data sets available – public and private.

Until now, the functionality of open banking was limited to the highly commoditized segment of payments. Moreover, the whole idea of empowering customers with data leads to an engagement that is fairly passive. A more promising direction for banks would be to harness the power of consumer data by using technologies like machine learning and artificial intelligence (AI) and gleaning and presenting these insights to consumers as actionable elements. Certain digital-only banks offer digital wealth managers – that utilize technologies like AI and displays an unwavering commitment to customer experience. Specializing in financial advisory services, these digital wealth managers not just manage customers’ investments but also reinvest their dividends and rebalance their portfolios automatically. The AI-driven platform recommends investment options to users based on their risk appetite, spending patterns, investable income, and other factors. These digital wealth managers exemplify how customers’ financial data can be used beyond personal finance management. Open banking is ripe for such applications that can help shape customer decisions and allow them to take action and start benefitting.

Beyond payments, open banking can help in budgeting and control, credit commitment management, financial advisory, income maximization, cashflow optimization, business performance insight extraction, and product or service improvement. However, this is possible only with increased customer engagement, meeting customer needs and offering something genuinely valuable. In doing so, banks must:

• Create products and services that are tailored to specific needs
• Develop features that aid transparency and enable control
• Offer convenience and speed
• Enable real-time visibility into account balance
• Create products and services that align with customer values and perspectives

The Long-Awaited Evolution of Banks

Banks have barely been able to scratch the surface of the open banking ecosystem. To make consumer data work for consumers and not against them, banks can win the loyalty of their customers by handing them the power to make informed decisions with regard to products and services or switch seamlessly. The possibilities are endless; it boils down to figuring out what and how. The answers lie in the sea of open data at their disposal. The stakes are high, and the winner will take all.