Capturing Value from the “Open Banking” Revolution

 

Who could have pegged Bill Gates with making prophetic predictions? Way back in 1994, when Bill Gates said, “Banking is necessary, banks are not”, such a bold statement sounded quite forthcoming, but rather it has served as the beginning of the transformation of the banking industry. Today, banking services are no longer the exclusive domain of banks. Tech giants including Apple, Google and Facebook have all made considerable inroads into offering innovative banking services. Just two years after debuting in India, G Pay grew 3X and reached 67 million monthly active users as of Sep 2019. To stay relevant to a customer base that wants banking to be instant access, mobile-first, omnichannel, and a highly customized/personalized experience, banks today must morph and operate more like technology companies—and they now have the opportunity with Open Banking.
A banking practice that provides third-party financial service providers open access to customer banking, transaction, and other financial data from banks and non-bank financial institutions through the employment of application programming interfaces (APIs), Open Banking has opened up the financial services playground. By allowing the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers, Open Banking is the Treasure Box of innovation that brings limitless possibilities. It can be leveraged to reimagine nearly every element of our financial lives—how we invest, save, manage money and make financial decisions.

The possibilities are endless with Open Banking

In fact, in a recent survey of 5,000 EU banking customers, 69% of respondents stated that it is essential for them to have an innovative bank; however, only 12% of respondents in the survey found their own banks to be innovative. The above statement is a direct call to traditional banking establishments—that in order to compete effectively in the industry, they must improve their digital capabilities to avoid being disintermediated by the flurry of new entrants who have flooded the market with superior offerings/products and services.

However, the situation isn’t too dire. Most banks, if not all, are well-positioned to compete with an equally exciting product and service portfolio. And Open Banking, is a gateway for banks seeking to close this gap. The European Banking Association (EBA) report indicates that through adopting and deploying APIs, banks can expand and enhance their native services and offerings.

Here’s a look at few ways in which Open Banking can empower banks. First, by opening up their APIs, banks can easily connect with other APIs in the market to extend their service offerings by introducing native FinTech solutions in an easy plug-and-play manner. Several such solutions are already prevalent in the market. The Experian Connect API, which provides consumers with the ability to display their credit score in real-time via their current bank account, or the National Change of Address (NCOA) API, which alerts banks if the customer has modified their address or whether a current address is accessible, are notable examples. And these solutions—with slick interfaces and offering real-time operations—are exactly what customers want.

More importantly such APIs, powered by Open Banking, serve the all-important role in improving customer engagement and meeting consumer needs in a secure, agile, and future-proof approach. For instance, how would you like, if your personal financial management (PFM) tool is now able to assist you with setting up financial goals? Or even something as simple as splitting bills or contributing to a family account. Well, Open Banking now makes it possible.

Similarly, Open Banking can be leveraged to create new experiences in the insurance space. Agents employ it for secure loan terms and more profitable treatment of records as it helps them see the most complete, dynamic, and up-to-date picture of an applicant’s finances. This then leads to the soundest lending and insurance choices conceivable, benefitting both their customer and their business’ reputation and stability. Open banking’s networked records likewise benefit insurance recipients. On their end, customers have unmatched clarity over personal spending practices and timelines, leading to better decision making. The increase in customer convenience is after all, directly proportional to better customer stickiness.

The result of accelerating digitization is that the next level of customer-centricity will evolve in allowing both private and business customers to have increasing control of the product and channel dimension of their financial services. Here, Open Banking, along with helping the faster digitization of services, will empower customers to more effectively manage their financial assets and data based on their specific needs—anytime, anywhere, and on any device.

It’s now or never
Today, future growth for banks and financial institutions depends on the ability of banks that can deliver truly innovative, value-added services at a speed as demanded by the customer. Open Banking and the ability to integrate APIs offer banks a golden opportunity as it acts as a greater leveler for small and medium-sized banks and financial institutions seeking quick growth opportunities. Banks that embrace Open Banking APIs can expect to see a 20% increase in revenue; meanwhile, those who reject the initiative may lose 30% of their revenue to ‘disruptive industry players’ by 2020. It’s now or never to make the most of the Open Banking revolution.

Padmanabhan R

Padmanabhan RCareer Banker, Galleried Photographer and Travel Columnist. Also develop banking applications in free time. Finished my CA and have done my tour of duty with organizations like Times Group, ICICI Bank and Yes Bank, before landing up in Clayfin to create digital banking channel solutions.