Over the last twelve months, the financial services industry has moved closer to the state of true open banking in leaps and bounds.
Following Europe’s introduction of PSD2 in January, markets from the US right through to Hong Kong, India and Australia all introduced legislation or reports promoting open banking. Australia simply gave its banks a deadline — March 2019 — by when they had to have Open Banking up and running.
At the same time, not only were hundreds of innovative fintechs jostling to take advantage of the opening of bank systems, consumers were also increasingly adopting new ‘open banking friendly’ habits.
Millions of customers have switched to using digital-only challenger banks. The volume of digital payments is growing at a rate of 12.7% a year . And over the next five years, the digital-lending industry is expected to grow at a rate of 18.7% a year .
Open Banking may not have transformed our world yet, but change is already in the air. Companies that want to win in this new environment must start preparing now. Here are our top 7 predictions for Open Banking:
- The day of the vertically integrated bank will end
Open Banking will disaggregate bank business models. But with the right strategy — data-led — banks can benefit, using their established customer relationships to break into new markets. In Argentina, for instance, the BBVA bank uses its open-API ecosystem to offer innovative and highly targeted services to different customer segments.
- Consumers will understand the value of their data
As soon as they realize how much of a better rate the right credit history will get them, consumers will be become much cannier about shopping around for financial services. For instance, a customer with a good credit rating may use it to shop around for the best loan rates.
- Banks will need to revolutionize the way they market
Banks will need to work to retain customer loyalty but also to target non-customers for a wider range of services. This requires a more active marketing model. Today, according to The International Banker, 83% of bank emails go unread or are skim read. In an open-banking era, banks must massively increase engagement and response rates for the whole customer journey.
- Disaggregation will see an explosion in choice
In this new environment, there will be far more financial services able to offer — thanks to open banking data — more precisely tailored products than ever before. In the Asia-Pacific region alone, the fintech sector is predicted to be worth $72 billion by 2020.
- Trust will be a key bank USP
Despite this profusion of choice, banks will have a key role to play as repositories and guarantors of trust: validating services for the consumers and providing verified consumer data to third parties. For instance, verification and authentication from the bank might unlock one-click credit or fast-track payment with retailers connected to the bank’s API. 70% of consumers said they trusted their bank, whereas 73% are reluctant to share financial details with retailers and other third parties. For B2C companies seeking optimal conversion rates and customer lifetime value, bank-API integration is a must.
- Banks will become technology companies
To retain the relationships which they’ve worked so hard to build, banks must offer a seamless and connected customer relationship — that means becoming a technology company. JP Morgan has already taken a step in this direction by investing billions of dollars in a new Silicon Valley campus, where its developer workforce will build its future as a digital bank.
- Partnerships will be crucial
Change is coming fast. But today, no bank has the full range of tech capabilities and infrastructure in-house that it needs. Partnerships will be a crucial part of the digital transformation. Both JP Morgan and Capital One, for instance, are already in talks with Amazon about digital-only current accounts for the online retailer’s customers.
The good news is, that this new environment — while it may be hostile for those who will not or cannot adapt — will richly reward the fast evolving first movers. As the volume of transactions and financial products grow, so do the potential rewards for those banks that are willing to do what it takes to compete in the new market.
Download our new white paper, Open Banking: The New Customer Frontier to learn more about how Open Banking will revolutionize the banking and financial services industry.
- World Payments Report 2018: digital payments booming, 16 October 2018, Alex Rolfe, Payment Cards and Mobile
- The global digital lending platform market size is expected to grow from USD 5.1 billion in 2018 to USD 12.1 billion by 2023, at a Compound Annual Growth Rate (CAGR) of 18.7%, 19 November 2018, PR Newswire