Opening up to open banking
The traditional banking landscape is changing rapidly as non-traditional players—including fintechs and neo-banks—enter the global marketplace. These new entrants target the same customers as traditional banks but offer a greater array of products and services. To counter the rising competition, banks are taking a closer look at open banking.
Open banking leverages application programming interfaces (APIs) to streamline a bank’s ability to do business with third parties. This enables banks to “plug and play” different components of the banking ecosystem; think of the way a rideshare company mobile app combines mapping, tracking and payment information.
Via open APIs, banks can readily launch new or non-traditional products and services based on how they understand their individual customers’ needs. It slashes speed to market since the product or service already exists through a third party: open banking simply gives the bank ability to access that product or service and offer it to customers, thereby making it a one-stop solution for all their financial goals.
Enhancing the customer relationship
Today’s customers look for transformational experiences from their banks. These must be limitless and readily adaptable to the changing requirements and expectations of customers in a “quicker-than-ever” world. Open banking helps banks meet customer needs and strengthen the relationship. For example, open banking can:
Ensure positive customer experience across all channels
As it accelerates the move to omnichannel banking and facilitates big data usage, open banking helps banks orchestrate a range of transactions across all channels and third-party applications. Banks can then personalize and roll out offers in real time—and deliver superior experiences and lifetime value to customers.
Provide agility to meet changing customer expectations
Today’s customers expect their bank to constantly enhance and expand its offerings. Open APIs empower banks to offer non-traditional products and services with a speed and agility that satisfies customer demands.
Deliver a personalized customer experience
An orchestration layer can now unite all bank platforms, applications and third-party customer data with advanced analytics. This enables the bank to create personalized offers and generate dynamic content appropriate to a customer’s life stage.
Automate and streamline processes to provide enhanced customer service
Open banking makes an array of tools and services available that automate or streamline processes in the branch and back office, thus improving the service customers receive.
By boosting the customer experience in all these ways, banks can attract new customers and create more “stickiness” in ongoing customer relationships. Open banking means more than simply offering customers more products: It truly enables financial institutions to understand the entire customer life journey. The bank then becomes an integral part of the customer’s life as it brings relevant financial and non-financial products, along with services, to customers in an individualized, timely manner. This translates into increased customer retention and a greater share of wallet.
Adopting the model
While the open banking concept is straightforward and the value proposition clear, implementing the model adds up to no simple endeavor.
Security stands as a huge concern, as open banking significantly expands the risks of unauthorized access, cyberattacks, data breaches and fraud. Banks must endeavor to understand the security protocols of the third parties they do business with and ensure that their customers’ data is secure throughout a product’s lifecycle both while in motion and at rest. New design patterns along with secured business processes and models must emerge for banks to make it seamless, empowering and valuable for customers to share personal information.
Operational requirements pose another obstacle. Open APIs facilitate a bank’s ability to integrate new products and services without the “rip and replace” paradigm of legacy applications. But blending legacy systems with modern tools and tech via open banking requires changes to the existing architecture. It substantially increases the IT ecosystem’s complexity; thus banks can suffer from lack of knowledge regarding best practices to integrate open APIs into their infrastructure.
The fact is that moving to an open banking model requires a long-term digital transformation strategy that focuses on technological and organizational agility. Such a multi-year project demands significant investment and encompasses more than technical aspects such as API security parameters and legacy integrations. Banks must consider how all this will affect their internal operations, branch capabilities and back office processes. It also requires a culture shift as employees adjust to a new way of doing business—including the automation of many tasks. Clear, targeted communications become vital to guarantee a great customer experience during the rollout of new products, services and features.
To position themselves for success in the near and long term, banks must think strategically about the open banking transformation. This means being:
- Outcome based. Take time to identify desired open banking outcomes rather than focus first on technologies.
- Customer centric. Leverage big data and analytics to determine how to better serve customers; dynamically understand their needs in real time and introduce suitable offers quickly.
- Future oriented. Consider tomorrow’s needs as well as today’s; assess how to structure an end-to-end open architecture that’s flexible and secure enough to accommodate emerging technologies.
Ultimately, open banking promises to achieve the agility and flexibility that stays abreast of ever-changing market trends and customer expectations. As such, those who embrace open banking today open the door to innovation and opportunity tomorrow—and the great wide open that lies beyond.
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For more articles like this, check out our recent executive report: Banking’s digital transformation.