Open Banking Opportunities to Retain and Delight Existing Customers

The banking landscape is changing. The days of walled garden banking where customers can’t see or access information from all their financial institutions in one place are coming to a close. For banks, and the entire financial services industry, open banking isn’t a threat but a customer service opportunity. Instead of putting barriers between customers and their financial information at other institutions, banks can offer value-added insights across accounts and institutions. Imagine financial institutions creating tools to help their customers manage and understand their finances, and promoting the services they offer and other banks do not.

In some ways, open banking isn’t entirely new. Some trace the beginnings back to the 1980’s but it has picked up steam in recent years. UK banks were legislated to adopt the second Payment Services Directive (PSD2) in 2018 and European banks had to implement it in 2019. Open banking puts the focus on helping customers integrate and better understand their finances. Open banking will mean more competition between banks, but also opportunities for new players to help banks win, and keep, customers with value-added data services.

There is a catch.

For open banking to succeed customers must trust their data is secure, won’t be misused, and if something goes wrong they know how it will be made right. The technical side of banks and fintech apps connecting and sharing data is the easy part. Getting customers to trust a new open banking paradigm, that’s the challenge.

Trust and security are essential

People are understandably skittish about giving apps and other financial institutions access to their bank account. When consumers read about hacks and losses relating to financial technology, it can make them wary of new banking approaches such as open banking. Banks should leverage their existing relationships with customers and reassure them their money will be safe, educating them on the protections in place to prevent unauthorized access to their personal data and resources. Case in point, the U.K. has one of the highest open banking adoption rates in the world, but 48% of Britons want verification from banking regulators in order to feel safe using open banking services.

Banks have a unique position in open banking. They could lose customers to “one click and switch” tools, but they can also serve as gatekeepers to help customers find the best financial tools to help them. Banks and fintech companies can work together to build trust and comfort with new technologies.

The early days of online banking are a good example of how banks can be at the forefront of privacy, security, and trust. People weren’t comfortable with using the internet to pay bills or do day-to-day banking. People wanted to see the cheque stamped or the bill payment made by a person right in front of them.

Now online banking is the norm. People deposit cheques with their phones and give money to friends with an email. This happened because banks ensured data and money were protected. And if something went wrong, there were ways to make it right.

Open banking will face the same challenges online banking did, but this time banks know what people need in place in order to feel comfortable using new technologies in their personal finances.

Open banking opportunities for banks

Open banking solutions—either developed in-house or through partnerships with fintech companies—present opportunities for banks to:

          •        Help consumers better understand their finances and financial health

          •        Create new banking solutions and products for customers

          •        Offer customers tailored financial products based on rich datasets across financial services.

Making sense of fragmented finances

People have financial products scattered all over. From investments in one place, to mortgages in another, to everyday banking in another, it’s a huge challenge to keep track of it all. Open banking offers a solution to financial fragmentation with cross-institution dashboards so people can really see where their money is and how it’s doing.

Banks and fintech companies can leverage open banking APIs to connect to other financial providers and let people connect all their accounts into one single view. Imagine what people could learn when they see all their information in one place. Imagine how banks can help customers see where there are opportunities to save or make money.

Create new ways to manage money

When money is locked up across different banks and institutions, it’s hard for people to access their money when they need it. What if before a customer goes into overdraft, a bank sends an alert to the customer saying they could avoid an overdraft if they move some money from one account to another? With a single click, they could move money exactly where they need it.

No writing a check or sending an e-transfer to themselves to move their own money to where they need it most. Open banking could offer a simple solution to a common problem.

Banks could highlight when there are potential shortfalls. When several automatic payments hit at once, people need to have the cash to cover it. But what if payment dates and payroll dates get out of sync? Banks can use the data from across all the accounts to find ways to avoid shortfalls and penalties.

Leverage more data to add more value

Banking and financial services have always been in competition, with each provider claiming to help customers manage their money better. In the past if a bank wanted a complete picture of a customer’s financial health, the customer had to bring in statements and information.

That’s not convenient—or efficient—for anyone. Bank employees have to make sense of a mess of financial records, and customers might not be able to find all their records in the first place. Just the request to find and bring financial information might be enough to discourage customers from using financial services of their bank.

Through open banking, it will be easy for bank employees to build a complete financial picture with customers. The customer and the bank can analyze all the accounts for a financial advisor to review. Much more efficient for everyone.

Understanding, monitoring, and securing your data flow with INETCO Insight®

While connecting datasets between banks and financial institutions is technically easy, managing the data flow can be a tremendous challenge. Open banking will require banks to have a much more intimate view of their data. Banks will need AI and business rules to ensure data streams haven’t been tampered with or intercepted.

Increased complexity means there is an additional layer of risk banks need to worry about. If one connected provider is hacked, banks need tools to react swiftly and cut data streams so customers are protected.

INETCO is a leading provider of real-time payment fraud prevention solutions and financial data analysis. INETCO solutions can seamlessly monitor data streams in and out of your backend systems for irregularities and alert you in real-time to take action.

As we move into the brave new(ish) world of open banking, the ability of banks and financial institutions to assure their customers that they have their backs is key to building and maintaining their trust.