Open Banking Was Only The Beginning – Welcome To The World Of Open Data
Increasingly banks are moving beyond basic compliance with Open Banking mandates to proactively participate in platforms and ecosystems that better leverage customer data and create truly personalized experiences. For the most part, traditional banks have been slow in their response to the opportunities Open Banking affords, seeing compliance as the principal goal, but that is changing as banks see new entrants build successful business models on data-sharing foundations. In this new world, banks can be manufacturers, packagers or distributors, but whatever roles they choose to play, the traditional vertically integrated approach to banking will look increasingly insular.
Banks’ lukewarm response to Open Banking is understandable — they are juggling many investment priorities and thus far data sharing mandates like PSD2 haven’t led to material customer churn or revenue loss. The response of many executives has been ‘much ado about nothing’ — which was amplified by customers who, during the pandemic, valued the support of traditional banks rather than the temptation to try something new. However, more than three-quarters (76%) of banks worldwide expect customer adoption and Open Banking application programming interface (API) usage to increase by 50% or more in the next 3–5 years. The combination of an increase in API calls and the availability of platforms to connect customers to services within and outside a bank will drive the next evolution of Open Banking — the “Open Data” economy.
A key enabler of the Open Data trend is the blurring of industry boundaries. Companies outside the banking industry are partnering with fintechs and others to bring financial products and services onto their platform to better serve customers and create a stickier customer proposition. For example, Enel, an Italy-based utility company, is collaborating with Swedish fintech Tink to launch an account aggregation solution, and with SIA to create mobile banking solutions. In Southeast Asia, ride-hailing platforms GoJek and Grab now offer dozens of on-demand services to more than 170M customers through their apps, from payments and digital wallets to transportation and food delivery services.
Many organizations in the financial services space are building ecosystems to try and replicate the functionality of ‘super apps’ like WeChat and Alipay. For example, PayPal and Klarna are looking to integrate financial capabilities like mobile payments, shopping, investing, savings, budgeting, and crypto onto a single platform.
But if traditional banks hope to compete in this Open Data economy, they will need to build the proper systems and processes to create relevant offers and value for customers. Advanced technology tools such as analytics, artificial intelligence, and machine learning can help banks harness and leverage data from external and internal sources to build customer-relevant products and foster a culture of data sharing and data-driven decision-making across the business. But the componentization of financial services is not something that many banks systems were built to facilitate.
In the Open Data economy, where partnerships will proliferate, traditional banks will also need to get comfortable with a more complex strategic landscape that will force them to address issues of revenue cannibalization and channel/brand conflict as they seek to maximize customer growth and market share.
Selecting the right partners will be critical. To build a vibrant ecosystem that can add value to customers, banks will likely need to manage hundreds of partners of varying degrees of importance. By measuring the real-time performance of partners, banks will be able to separate the signal from the noise to make sure customers have easy access to the offerings that make the biggest impact in their lives.
API security and customer protection will also need to be a major priority as bad actors try to identify any potential weakness in the banks’ offerings. Banks need to be vigilant about authenticating customers and service providers and keep a close eye on incidents of fraudulent transactions. While security is crucial, banks will want to ensure that their security measures don’t impede the customer experience and ease of use and get the balance right between risk and growth.
The banks that will thrive in the Open Data economy will be those that build the capabilities to aggregate and extract insights from both internal and third-party data and build meaningful and relevant customer experiences, all while keeping customer information safe and secure. Banks that take the initiative to progress or leapfrog their Open Banking strategies to the Open Data economy will not only take a piece of the $416B in revenue opportunity, they will also protect their existing revenues and market share from competitors within and outside the financial services industry.