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Wide open banking: A connected model for loyalty success

Aug 5, 2019 / Technology

As the digital economy becomes more connected than ever, open banking has taken hold. It uses application program interfaces (APIs)—think of a hub that lets various apps work together—to open customer data access, improve customer experience and create new revenue models. And it has much more to offer if we re-imagine it as an ecosystem: integrated  with distributed ledger technology (DLT) or blockchain.

There’s much work to do in basic digital capabilities vis-a-vis acquisition, onboarding, mobile engagement and retention. But given the larger, impending picture of a digital, connected future, the need is even more urgent.

Ask yourself: What attracts and keeps customers? It’s not merely tradition, as innovative players can offer better rates and value-added services such as bill pay. Consumers are getting more comfortable with switching to digital-only interactions. Meanwhile, banks themselves are innovating, which also erodes traditional competitive channels of personal trust and familiarity.

Loyalty 2.0

As banking services delink from a physical bank, it’s time to reimagine open banking with a focus on ecosystem and loyalty.

The traditional premise of loyalty is simple: You transact and receive status that you can then exchange for additional value. Whether viewed as a challenge or opportunity, this no longer measures loyalty well. A recent COLLOQUY Loyalty Census finds that while 76 percent of Americans think loyalty is key to their relationships, 44 percent say it’s easy to swap one program for another—and 67 percent will happily change brands to maximize their benefits. The 2017 report also indicated that while loyalty enrolments are up 15 percent, more than half of those memberships are inactive.

Current loyalty models also fail to provide much needed aspirational or experiential value to consumers. They work well for immediate financial gratification, but not long-term customer engagement. And without deep context, vying for a dwindling share of a customer’s digital attention is not very rewarding.

Amazon and the advent of advantage

This across-the-board customer engagement gap actually provides a strong opportunity for banks and their open banking programs. That’s because banks are in a position to build a new model of contextual customer engagement aligned with how customer experience is evolving. As outlined in my book, Connected! How #platforms of today will become apps of tomorrow, we must look outside-in for partnerships that extend a value proposition. Instead of simplistic “customer personas,” let’s look for ones that interact across a group of businesses (a.k.a. an ecosystem).

Consider Amazon. Its Prime program went from free two-day shipping for books to multiple areas of customers’ lives: retail, movies, songs, Kindle, lending, payments. Extending to physical stores such as Whole Foods, Amazon Prime benefits link all its participating businesses.

In the broader marketplace, competitors vie in every single area—Netflix for media, Barnes & Noble for books, and so on—but face an uphill battle to innovate on core offers with low pricing. What’s the differentiator? Competitive moats appear where businesses collaborate. Any bookseller challenging Barnes & Noble’s program must contend with free Starbucks coffee every month that’s part of the deal. Both businesses benefit with increased volumes and/or retention.

This analogy holds for banks because multiple products per customer improve retention and profitability. Banks have the opportunity to become the lynchpin of an ecosystem based on a unified customer experience.

What underpins this? Open banking. But there’s a problem: How to make this main street collaboration work? And is it even possible without invasive technology “surgery”?

The open banking-blockchain springboard

It’s proven difficult to pinpoint a technologically simple way to connect customer experiences using open banking-powered by APIs. For one, multiple data silos must work in concert and stay in sync. When business processes and rules are independently developed and interpreted, non-uniform customer experiences result. This also brings with it the huge risk of privacy and data breaches that slow innovation.

Yet the business processes of multiple entities can be linked in ways that preserve confidentiality, competitiveness and privacy. Despite a recent lack of enthusiasm, blockchain serves to define and execute multi-party workflows in this way, with open banking emerging as a multi-business play.

Together, open banking and blockchain form an innovation springboard. By way of example, imagine that a fitness center, bank, and food store become part of a blockchain-enabled ecosystem. The customer journey now becomes a shared business process instead of limited to one merchant. Without revealing private data, each business can contextually address customer needs as though each interaction is connected. The shared business process drives and orchestrates all customer interactions without sacrificing business independence. First, the fitness center that signs up a client. This triggers a smart contract that leads to a tailored list of foods they can buy. Lastly, payment options are already set up. The fitness center achieves retention, the store gains sales, the bank moves the money—and the customer wins.

Parting thoughts: The model moves forward

New businesses can also enter and exit models like this in areas such as health insurance, apparel, travel and more. A company can even join multiple competing ecosystems.

Granted, it’s easy to get bogged down in the high-tech details. Yet today’s advancements allow us to put aside these lower-level complexities so we can focus on the important stuff: customer engagement and experiences in a connected world that employ a test-before-invest tech model.

A powerful banking ecosystem lies within reach. We need only to re-examine the traditional concept of customer journeys and look outside-in for possibilities. Besides improving customer experiences during transactions, let’s also now think about how to drive transactions from connected experiences. In this way, we can rethink and realize what consumers already want to achieve: banking and finance linked to each and every need in their lives.  

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Manish Grover is also the author of “Dancing the Digital Tune: The 5 Principles of Competing in a Digital World.” He can be reached at manishgrover.com.