Five Open Banking Use Cases beyond Account Aggregation

 

Imagine the following scenario: – Your customer is all ready to purchase his dream house. All that’s left is the matter of the loan being approved by your bank. Past experience has the customer expecting the process to drag on for a couple of weeks—after all the checking of the customer’s credit rating, the upload and verification of relevant documents and all other compliance procedures can take ages. But to your customer’s surprise and delight, the process which was expected to take weeks or days is over in a few minutes, thanks to the revolution called Open Banking.

‘Open Banking is like a dandelion whose seeds blow far and wide’, stated Faith Reynolds in the January 2017 publication titled, Open Banking A Consumer Perspective . Quoted at a time when the entire concept of Open Banking was relatively new, this statement has proved to be quite true. A 2020 survey of 290 European financial institutions by a Swedish account aggregator has shown that the median open banking spending lies between €50-€100 million, with 45% of the said institutions surpassing the €100 million mark. And while Open Banking API connections now enable the collection, assembly, and synthesis of information from various accounts in a single place—opening up use cases like credit scoring and underwriting—the account aggregation use case is just the tip of the iceberg. According to PwC, by 2022, Open Banking brings with it the possibility to create a revenue opportunity of at least £7.2 bn across retail and SME markets. To tap into this immense opportunity, banks and financial organizations will have to follow those dandelion seeds beyond mere account aggregation. Here are five exciting use cases with immense possibility to create value for both banks and their customers.

  • Taking PFM to the next level — Financial service providers utilizing open banking can now help customers transform their budgetary practices into healthy financial habits with next-gen Personal Finance Management (PFM) apps. Since Open Banking offers actionable reports through multi-bank PFM, banks are using this possibility to provide a better overview and easier tracking for consumers. Leveraging Artificial Intelligence (AI)and Machine Learning (ML) tools banks can bring real-time insights to set goals, resist overspending and make prudent investment, insurance, and retirement choices—and turn these choices into habits.
  • Designing a reliable lending/credit assessment — Open Banking brings banks and financial institutions the opportunity to increase the velocity of safe lending. The open API framework allows the lender to access documents directly from the source through user consent that opens up access to customer data across banks. This enables banks to experience a twofold benefit— banks and financial institutions can get a more complete perspective on clients’ creditworthiness dependent on alternative financial data, and can prevent defaults through the ability to monitor clients’ financial wellbeing comprehensively. There is possibility for new revenue generation as well. They now can reach out to new segments of borrowers who can benefit from the speed, agility, and lower processing costs that such an ecosystem provides.
  • Enabling proactive wealth management — While in the past a relationship manager was privy to only the customer’s assets data with their firm, Open Banking expands this to gaining access to data from multiple financial institutions. Such a database can enrich wealth management by providing proactive and quality advisory leading to enhanced customer stickiness.
  • Simplifying corporate investment advisory and continuous monitoring — This is another area where Open Banking can open up immense possibilities—especially in a corporate context. With an organization’s financial portfolio accessible to portfolio managers in real-time it becomes easier to provide a seamless, digital experience that attracts corporate clients. The seamless flow of data further helps in real-time monitoring to detect and predict instances, enabling better risk decisions.
  • Launching AI-driven Robo-Advice Tools — As Open Banking becomes more widespread, customers are better empowered to optimize their funds more easily—more so with the help of AI applications. AI applications can be deployed to analyze customer behavior, scan the market for new products, and offer personalized recommendations to customers. Such recommendations can extend beyond financial advisory, and can include providing information for multiple other services. For instance, consumers seeking ideal apartments can be given the right recommendations by analyzing financial data related to shopping or transportation.
    Stay ahead of the seeds that are sure to blow far and wide

Judging by the number of uses cases that are mushrooming every day, Open Banking applications are definitely here to stay. Most banks and financial institutions have already taken the initiative to integrate with the ecosystem by creating Open APIs. However, many are yet to determine value from the same. Integral to creating this value will be the many use cases that will help banks turn standard banking products into commoditized applications through the Open Banking ecosystem. As the seeds of Open Banking start to blow far and wide, banks and financial institutions will have to start envisage and act upon the many opportunities that Open Banking is bringing.

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.