By Ame Stuart, Vice President, Digital Markets, Capgemini Financial Services
Open banking is an open secret. Financial services providers worldwide recognize the tremendous opportunities open banking creates to digitally transform financial institutions, drive innovation, create a partner-services ecosystem, and unleash new business models to power growth and customer loyalty. What’s less clear is how banks can take full advantage of those opportunities without exposing themselves to undue risk and costs.
How we got here
Before examining strategies to capitalize on the Open Banking era, let’s take a closer look at how we got here. Across the globe, regulatory and consumer-led forces have pried open the financial services market, allowing FinTechs, agile neo banks, and other digital disruptors to shake up the traditional banking ecosystem.
On the consumer front, expectations continue to grow and evolve. Millennials are now the largest living generation, and they and other tech-savvy customers want and expect engaging, highly personalized products and services. To attract new prospects and maintain the loyalty of existing customers, financial firms are increasingly turning to application programming interfaces (APIs), machine learning, artificial intelligence (AI) and automation.
In the European Union (EU), regulations are an additional force spurring the evolution of Open Banking. The revised Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR) require greater transparency from financial networks, which is leading to more consumer choice and the ability to collaborate with new FinTechs. These compliance requirements are creating new revenue potential, but they also introduce security concerns, complexity, and risk.
An additional force shaping consideration of Open Banking is the proliferation of third-party players (TPPs). Account Information Service Providers (AISPs), Payment Initiation Service Providers (PISPs) and other TPPs could disintermediate EU banks, even as those banks are in the midst of adopting strategies to balance risk with innovation, and competitiveness with compliance.
The big questions
Many financial services firms are trying to determine how Open Banking fits into the future of their firm. With so many business strategies, options, and tools available, how do you decide which will provide the greatest value and least risk? To begin, it’s important to carefully consider these four questions:
- Where do you want to play?Who do you want to be, and how brave can your Unique Value Proposition be to achieve that aim. Do you want to remain a provider of traditional financial products and services, or expand your mission to engage with consumers more actively—or some combination of the two?
- How will you engage with the market? Once you’ve defined your general direction, select a specific Open Banking model to support that direction, and take steps to put it in place. There are multiple options to select form, ranging from becoming an in-house TPP if your brand permits, or creating a new brand to house your aggregation play. Success here is dependent upon raising awareness, internally and externally, of what your financial institution is doing, where it is going and the value the new approach will offer customers.
- How will you win over customers? Today’s consumers are in control, so being customer-centric is critical. Keep asking what a customer will gain by staying with your bank, rather than switching to another firm or Google-Apple-Facebook-Amazon (GAFA) aggregator.
- Which new technologies do you need?To execute on your plans, you may be able to leverage your existing investments in compliance. In addition, you’ll almost certainly need to invest in some of the latest technologies, such as blockchain solutions, that can speed implementations, deepen customer advocacy and unlock new revenue streams.
Put customers—and data—first
Customers expect to control their personal financial data and access services tailored to meet their needs. With Open Banking, it is now possible to meet rising demand for these personalized, customer-centric solutions. Imagine creating more impactful loyalty programs and more targeted marketing campaigns that are designed not only to target new customers but also to proactively retain existing customers. Those are the types of solutions that increase competitiveness and win customer loyalty—and they all depend on data; the new economic-fuel.
Specifically, the novel products and services available today depend on leveraging banks’ own customer data, as well as third-party data lakes and data management platforms (DMPs). A flexible, scalable Open Banking implementation allows banks to deploy as much or as little of this data as they want—and sequence and orchestrate solutions at their own pace, in their own way.
By taking advantage of data, banks can drive value-aligned propositions in the form of digital loyalty and proactive customer relationship management. For example, an API-based PSD2 solution can help banks take advantage of new strategic and collaborative opportunities by providing third parties with controlled account access. Or, by integrating with a DMP, a bank could capture, unify and activate its data to gain insights that drive more targeted and effective marketing campaigns. For banks seeking to make loyalty programs a bigger part of their mix, a digital loyalty-tokens platform can make it easier for consumers to convert, use and share points.
Open banking is the future
Open Banking will become more pervasive in the years ahead, which makes it imperative for financial institutions to capitalize on the opportunities and stake their claim now. That means asking the big questions and examining the best ways to use data to create the customer-centric approach customers are demanding.The time to ditch the “fast-fail” approach has arrived, in favor of “succeed-fast”, which means rapid experimentation needs to become a key part of the organizational-culture.
With the right strategy, technology framework and partners in place, financial services providers can embrace the future—and compete and win in a rapidly changing marketplace or financial ecsoystem.
 The EU General Data Protection Regulation (GDPR) is the most important change in data privacy regulation in 20 years, http://www.eugdpr.org; Accessed December6, 2017