It’s a fact: banks have traditionally had the whip-hand in the balance of power with consumers. But with the advent of open banking, the status quo is about to change.
The good news is that this disruption - like banking technologies before it - provides an opportunity for those who are ready to respond. Open banking offers a golden moment for Australian banks to attract and serve customers in new ways.
What is open banking?
Open banking is an emerging technology that allows third-party developers to securely access real-time customer data from participating banks using open application programming interfaces (APIs). Potential applications include:
- Personal finance solutions that integrate with budgeting and accounting, allowing customers to make payments from within non-banking applications such as Amazon or Facebook
- Third party fraud detection services
Some organisations are already ahead of the curve. British multinational banking and financial services company Standard Chartered, for example, has an open API developer portal. Similarly, the Central Bank of Ireland has added Facebook Payments International Limited to its roster of digital payment providers.
Locally, banks and financial services firms can expect open banking to disrupt the industry in the following five ways.
The days of customers choosing one bank for all their financial needs could soon be over. Open banking will allow customers to manage a variety of financial products and services from different institutions with a single application, opening the market to new and more agile finance players.
It’s expected that consumers will find themselves in a (figurative) supermarket of products and providers. In picking and choosing from these, they will also be able to see and act on their full financial profile at a glance and make better-informed, more autonomous decisions.
- More personalised customer experiences
By providing banks and other financial institutions with data from multiple sources (i.e. budgeting apps), open banking supports personalised, on-demand, omni-channel customer experiences. This means banks have the opportunity to become a central resource in a consumer's’ daily life for traditional banking products but also - eventually - for entertainment, travel, hospitality, retail and a host of other services.
To thrive in an open banking world, successful players will:
- Have access to robust data analytics
- Build partnerships with fintech firms, independent software developers and other outside providers
- Harness newly available data to enhance digital customer experiences
- Find the best fit between the individual and their products and services
Macquarie Bank has already moved in this direction. Its head of personal banking, Ben Perhamsing, told Business Insider that Macquarie Bank is using open banking APIs to deliver a “highly personalised digital banking experience”
- Unlocking new revenue streams
Experts predict that in the near future, banks and fintech firms will work together to build cross-industry platforms with bundled, complementary services that benefit customers and unlock new revenue streams. Banks that leverage the benefits of API integration with their existing customer relationships to develop their own open banking services will be the winners and will both retain and grow their customer base.
- Increasing the pace of changing in financial services
Banking and finance have a reputation for responding slowly to change compared with other industries. Open banking will speed up the pace of change as banks strive to compete and remain relevant in a digital world filled with new and more nimble players.
The win-win scenario for banking and customers provided by open banking will drive innovation and improved services and will accelerate change.
Delivering intergrated customer experiences
Banks already know that ‘data is king’ in their ability to compete in a tough market and deliver integrated customer experiences. Access to more data and enhanced data analytics will support banks to deliver more integrated information, improved interfaces and increased personalisation.
Most banking is now done digitally and data is central to everything from providing online services to communicating with customers. In an open banking model, data must be made accessible on request with the availability of real-time analytics. Banks will need to ensure that their IT infrastructure is ‘data-centric’ so that data can be analysed at speed to drive more functional, integrated service delivery.
The future of banking is fluid and exciting. Open banking is just one of several trends shaking up the industry. Automation, integration and the availability of data are all merging to give banks the opportunity to serve the rapidly changing needs and expectations of their customers more effectively.
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