Open banking tiptoed in earlier this year in the EU, opening up customers’ payments and banking data to third party financial services providers with little fanfare. Since then, we have not seen any dramatically different applications hit the market, or changes in customer or bank behavior for that matter.
So, what happened? The result was meant to be greater choice and competition for customers, and the possibility of entirely new revenue lines for retail banks. It was meant to be transformational.
The truth is, transformational events don’t always happen in a day – or in a few months. Rather than a “big bang” or revolution, we should consider open banking as a sea change – something that happens gradually. For, although the latest EU regulation came into effect in January, banks need time to decide which flavor to try when sharing customer data. Will it be vanilla - for compliance reasons only? Pistachio – for building ecosystems? Or the full hot fudge sundae - sharing customer data externally and integrating external capabilities and data to build ecosystems and new offerings?
The data is the key. Whereas in the past banks were monoliths totally focused on keeping client data safe inside, now banks have to have to share data with the outside – and their future will depend a great deal on how to use data to generate new revenues. The next evolution of open banking is to integrate and bundle external financial services offerings within the bank to create new “best of breed” products and services.
An example could be buying a home. Even before a customer applies for a mortgage, the bank could act as a trusted advisor through its mobile app to help the prospective homebuyer plan for success. Closer to the time of purchase, the bank could introduce a series of partners to the customer: realtors, lawyers, insurance companies, movers, school advisors, landscapers, as well as a mortgage approval tool.
There are broadly three phases to digitalizing banks in preparation for open banking. Data exchange is all about sharing data – both inside and outside the bank through open APIs. Services exchange means banks need to be prepared to deliver real-time, dynamic, contextual, scalable experiences. And knowledge exchange means they must have an intimate understanding of each individual client’s behaviors and the ability to anticipate his or her needs and actions.
This is all about building and managing well-secured APIs, publishing APIs to your partner ecosystem and enabling authorized access to data and services. However, banks need to extend beyond open APIs for payments - or risk becoming disintermediated from their customers. This is why it’s critical that the API platform that is developed is scalable, controlled, governed, and provides the ability for the business to measure monetization.
Fintechs are competitors but also can be partners. Leading FSIs are already building out ecosystems that include fintechs as well as other 3rd parties. The biggest threat on the horizon for the banks is from Big Tech like Google, Apple and Amazon.
Many banks already consider themselves tech companies and use their data to create 360-degree views of the client in order to deliver value in new ways with rewards, incentives and better services – all delivered excellently – that will drive cross-sell and up-sell.