Make no mistake about it: Open banking will transform how the financial industry operates. The movement has yet to realize its potential, but the shift toward rich, data-led customer experiences is just around the corner.
Despite the imminent rise of open banking, most financial institutions are yet to fully embrace the changes. Those that struggle against the tide will find themselves ill-prepared to compete in tomorrow’s markets. Successful banks must engage customers by positioning their services as holistic journeys and incorporate wider product sets. This will be a slow process, but to succeed banks must learn how to communicate with consumers without it being perceived as spamming them.
These problems strike at the heart of the banks’ commercial strategies, not just their technology road maps. Tools cannot communicate on their own. A cross-functional strategic response is required, yet the right digital tools can make this process a lot easier and less risky.
The Challenges of Open Banking
The old ways of banking will be all but dead. Internet players have commoditized payments, while mortgages and loans aren’t far behind. The information advantage that has kept banks secure for decades now faces extinction — and only their evolution can stave off the inevitable.
Bankers can no longer rely on that wealth of data. If one bank rolls out new and compelling services to incentivize customers to provide more information about their relationships with competitors, the bank can use that information to steal deals. Healthy competition drives innovation and benefits consumers, so banks that are slow to innovate will struggle in this new competitive landscape.
Open banking capabilities will commoditise existing revenue streams but will also bring new opportunities. The open banking movement creates and encourages data fluidity among banks. Now, an individual customer can give an electronic mandate to a company, including rights to transfer data or money. That entity then gains the right to move money in and out of the account, essentially reducing the bank to an infrastructure platform.
The only way for banks to avoid this is by moving away from commoditized products and toward a broader range of rich products and services. Further, they can mine signals in the data to better time those offers, presenting them in a contextually relevant way to increase conversion rates. The ability to effectively leverage accessible data — both from customers and other providers — will be a critical source of competitive advantage. In this sense, service refers to use of data in order to fuel a sort of financial concierge that makes smarter, more personalized recommendations.
Personalization is a vital component of modern financial marketing, but open banking promises to take customized offers to the next level. The more data customers allow their banks to use, the better the insights and product recommendations financial institutes can provide. The wider the range of products sold, the more data the bank can gather. This cycle, which resembles the Amazon flywheel model, strongly rewards banks that continually hone their services while driving those that stick to old tactics and models through the wall. What happens when a bank begins to offer a “health and wealth” package that goes beyond financial services to include a complete lifestyle package? With open banking, the possibilities of commercial, concierge, and retail-like services are nearly endless.
Engaging the Customer
According to a Bain & Co. study, half of current retail bank customers who bought a product from a competitor say they would have bought it from their primary bank if they’d been made an offer at the right time. Yet, 83 percent of retail bank marketing emails are skimmed or go unread, according to a 2016 IBM and Silverpop joint study. Banks now face a dilemma. They need to engage the customer more deeply, yet their attempts to do so are perceived as spam and undermine the very customer intimacy that the banks are trying to build.
As banks progress on their open banking journey, this problem looks set to get worse. Service-oriented journeys, more products, and more partners will lead to more customer interactions. These open banking strategies risk being stillborn unless banks can make their communications contextually relevant.
What might that look like? For instance, think about a pension offer that’s been personalised for a customer, but unless they are interested in pensions, the offer won’t be read and is of no benefit to the customer. That’s where personalisation falls short and contextualization kicks in. Contextualized content taps into the customer’s needs and wants by looking for signals in diverse sources of data relating to the customer.
By building such contextualized experiences, a financial services organisation can ensure that it is perceived as supporting the customer by delivering only the content that helps with the issues a customer wants (not needs) addressed. From the customer’s perspective, the financial institution is not passive, nor is it lecturing them. Rather, it is listening to them and understanding how to support them.
New technologies such as AI play an important role here, so it’s important to appreciate that a “contextualization enabler” should not be service-specific because it would restrict innovation. Bolting contextualization modules onto existing CRM systems may lead to what Henry Ford might have described as “faster horses,” but contextualization platforms are best thought of as a new layer in the bank’s enterprise architecture that can be used to support diverse customer interactions.
Enterprise contextualization platforms have been developed by companies to mask the complexity of data science and deliver a flexible platform where customers’ experiences and journeys can be created and optimised. These solutions represent one of the technological cornerstones needed to take advantage of and compete in the post-open banking era.
Changing of the Guard
As this shift progresses, banks will also need to preserve their positions of trust. Some people might not like banks, but they generally trust them with the safety of their money. This trust must be built upon if financial services organisations are to gain permission to become the customers’ data custodians. In the wake of breaches at Equifax and Wells Fargo, people still trust banks more than companies like Google and Facebook, but that trust could evaporate quickly if not protected.
That constant drive to improve is the final piece of the puzzle. Banks cannot afford to muddle through the open banking revolution. On the contrary, only the institutions that innovate and anticipate changes can hope to hold or grow their value in the coming years. Optimising speed of innovation, permissions, identity, personal data management, privacy, trust, and partner ecosystems can help banks show value to customers and distinguish themselves from competitors.
Open banking may have begun with a whisper, but that quiet beginning will soon give way to a roar of financial change. But before that roar reaches a full bellow, banks must pivot away from the commoditized, private, product-oriented value propositions that have sustained them for so long and must turn toward the service and innovation mindset that will see them through the new age.