Open Banking has the potential to be a game-changer for the banking industry. The gatekeepers (banks) are being forced to share their single most prized possession – customer data – in order to create a more vibrant ecosystem that promises to maximise consumer welfare.
Banks can be thought of as companies that use information (credit scores, cash flows histories, payment trends and asset prices) to make decisions (granting credit, deciding level of interest rates and fees) through the use of complex technological systems (payments infrastructure, trading systems and customer databases).
Since bank behaviour is so similar to Big-Data tech firms, opening the database to other services providers will be transformative. What makes it even trickier for banks is the fact that the onus on ensuring data security will most likely be placed on the banks themselves.
Open Banking’s Impact on Banking
An often quoted statistic is that the average bank customer is more likely to stay with their bank than remain loyal to their husband or wife. Stickiness of banking customers works heavily in favour of incumbents and strong initiatives like ‘current account switching’ have not changed the statistics dramatically. However, Open Banking has all the prerequisites to change the old rules of the game. Simon-Kucher & Partners sees at least three potential consequences that should be considered by incumbent banks in their strategic response to Open Banking.
Competitors: the emergence of Fintech-Fintech collaboration
So far, the prevalent business model has seen incumbent banks collaborating with Fintechs to leverage each other’s strengths: a wide client base meets better technology, for instance.Open Banking has the potential of creating collaborations among leaders in the fintech space and crowding out incumbent banks from the latest innovation. Marketplaces for banking products are already emerging parallel to traditional channels, championed by the most successful disruptors. The collective approach will get more common as Payment Services Directive 2 (EU-wide) unlocks customer data and the ability to make payments on behalf of someone else’s ‘customer’.
Customers: the dawn of planet of the millennials
Fintechs are attracting mostly technology-savvy millennials who over the coming decade will be the most powerful consumers (if they aren’t already). Fighting for a share-of-wallet of these consumers could be the differentiator for a bank’s long-term profitability.As more millennials start to occupy centre stage in the economy, banking services will be channeled more through non-traditional players. Banking will remain an intergenerational industry, with parents opening accounts for children before they even understand the basic concepts of finance, but millennials have proven much more likely to challenge the status quo, to try new experiences, even in financial services. For banks, Open Banking could mean the loss of an exclusive relationship with their customers. The risk is that they become pure back-office servicers while new players capture more of the value chain.
Products: commoditisation and margin erosion
As the barriers to entry fall due to the sharing of customer data and new players enter the market, the industry runs a risk of price wars being triggered to grab additional market share. Pressure on margins and profitability is common in industries that went through a shakeup of competition rules and saw the entry of innovative competitors, the airline industry being a prime example. Also, considering the stickiness of the average bank customer, new disruptors will necessarily compete on price as well as quality of service to convince customers to move. This will likely result in further battles for the last basis point. Open Banking will definitely put pressure on the profits generated by traditional banking products by making them more comparable and more easily accessible.
Crystal Ball 2027
The threat to the traditional banking business model as it stands today is real. It is entirely likely that the bank of 2027 will look very different from today’s version – just as today’s banks differ quite significantly from their 2007 iteration.
Banks will need to create moats in order to ensure that their core business remains intact.In order for banks (High-street, Challengers and everyone in between) to get their Open Banking strategy right, they need to fully understand their customer needs and expectations in a digitally-banked world.
Traditional banks have a high-value proposition which they should not neglect as part of their future customer retention and acquisition strategies:
- Access to central banking infrastructure means that banks are guardians as well as beneficiaries of the people’s trust in the financial system
- The ability to offer a full financial product suite through the use of financial leverage
- An often under-appreciated presence on the high-street
- Years of insights into customer behaviour
However, banks have been hamstrung by legacy issues. They have yet failed to capitalise on their core advantages. The threat and the opportunity of Open Banking is hard to ignore anymore. High street and Challenger banks both need to press home their advantages at this critical inflection point.
Banks will need to implement several-to-all of the following 10 strategies to remain competitive in the ‘new world’ of a post-Open Banking era:
10 strategies for banks to remain competitive in the post-Open Banking environment
- Enhanced approach customer segmentation: Understand customers’ real needs and address these through strong segmentation strategies. Young tech-savvy consumers need to be pursued and retained aggressively in the immediate future. However, as more people start to adapt to managing their finances digitally, longer-term segmentation strategies need to address these customers through differentiated and targeted offerings.
- Advanced analytics to aid customer segmentation: Identify the business units most vulnerable to Open Banking. Develop analytics to identify customers within those business units most likely to be unprofitable in a range of (pessimistic, realistic, optimistic) post-Open Banking scenarios. Banks will need to decide whether they can offer incentives to these customers to stay and increase profitability through cross-selling initiatives or decide on alternative low-cost ways to service this segment in the future.
- Optimised digital customer journeys: Equally fundamental is to ensure that digital experiences align with customer expectations. As more and more banking relationships evolve into‘digital-only’, they need to become simpler, yet flexible enough to guide customers to suitable product and service configurations. The digital journey needs to promote customer confidence.Banks need to convey that customers’ financial interest are top priority even with reduced human interactions. Banks have failed at this fundamental task over recent years but digitisation offers a golden opportunity for them.
- Solution-oriented approach to innovation: Product and service design need to accurately align to divergent demands. The purpose of a solid customer journey is to aim to solve a consumer problem, not just offer a fancy financial product. Banks need to be vary of customers becoming uncomfortable with feature-heavy Open-Banking solutions and communicate effectively how their offering solves specific problems and makes lives simpler.
- Improved loyalty strategies: Reduce customers’incentive to act (e.g.: move money to a different bank) for short term gains. Loyalty schemes and reward structures need to be dynamic – able to react to tail-risk events such as an abnormally large number of outbound payments made by an Open Banking-related API. The value proposition also needs to be tailored to convey the bank as a “pair of safe hands” that provides a “hassle free” service.
- Enhanced pricing models: R eview the pricing strategy and product architecture to generate more fee-based income through innovative services. A good digital product offering will be vital here to increase customers’ willingness to pay. A simple example is a Good / Better / Best solution that offers a no-frills account, a premium account that incorporates a degree of advisory services and a tech-heavy all-inclusive package.Such a comprehensive product offering presents increased monetisation opportunities and needs to replace the one-size-fits-all Internet Banking model that is prevalent today.
- A coherent customer communications strategy: A new product roll-out is toothless without a strong sales communications strategy. Sales teams need to be trained in the basics of behavioural economics and incentivised suitably for maximum impact. Communicating value to the client will be crucial in an Open Banking world with a hyper-fragmented product suite.
- Heavy investment in technology infrastructure: The core objective of Open Banking is to unlock the closed ecosystem in which banks operate. Ignoring the quality of the technology infrastructure will leave banks vulnerable to inestimable operational risks.
- Develop a Fintech strategy: Banks may choose to acquire or incubate the Fintech start-ups most likely to eat into their core business, run them initially as independent subsidiaries with a view to integrating them at a future date. Another option can be collaborating with established Fintechs. Smaller banks will want to collaborate early with large Fintechs to offer bundled products that can help compete with big banks. Developing a strong pricing configuration and roll-out strategy before going to the market will be key for the Challenger banks.
- Leverage high-street presence: Finally, banks need to make effective use of the one advantage that other players will never have. Physical presence must not be wasted and needs to be used to be augmented with a more fleet-footed sales process in-branch. Banks will need to provide tailored advisory services that clients are asking to cope with an increasingly complex and uncertain world. Branch numbers and sizes will be reduced but customers will still want them at least in the medium term. These will be captive customers for banks whose willingness to pay needs to be optimally captured.
Banks are effectively information technology companies.It is inevitable – by design – that their business will be affected by the Open Banking initiative. A range of impacts will be felt through changing behaviours displayed by customers and by competition. Banks will need to respond early and decisively in order to thrive.Big banks that do well will be the ones that focus on innovating their core business, invest in technology and monetise their digital propositions.
Small banks have the opportunity to innovate too, use their systemic vantage-point and couple it with newer technology to truly challenge big banks. They may choose to fend off or collaborate with Fintechs depending on their proposition. The Challenger bank of today that ends up as a digital leader in the Open Banking era will be the one that acts like a Fintech while optimally utilising the access it has to the same infrastructure available to the big banks.
U.S. inauguration turns poet Amanda Gorman into best seller
WASHINGTON (Thomson Reuters Foundation) – The president’s poet woke up a superstar on Thursday, after a powerful reading at the U.S. inauguration catapulted 22-year-old Amanda Gorman to the top of Amazon’s best-seller list.
Hours after Gorman’s electric performance at the swearing-in of President Joe Biden and Vice President Kamala Harris, her two books – neither out yet – topped Amazon.com’s sales list.
“I AM ON THE FLOOR MY BOOKS ARE #1 & #2 ON AMAZON AFTER 1 DAY!” Gorman, a Los Angeles resident, wrote on Twitter.
Gorman’s debut poetry collection ‘The Hill We Climb’ won top spot in the online retail giant’s sale charts, closely followed by her upcoming ‘Change Sings: A Children’s Anthem’.
While poetry’s popularity is on the up, it remains a niche market and the overnight adulation clearly caught Gorman short.
“Thank you so much to everyone for supporting me and my words. As Yeats put it: ‘For words alone are certain good: Sing, then’.”
Gorman, the youngest poet in U.S. history to mark the transition of presidential power, offered a hopeful vision for a deeply divided country in Wednesday’s rendition.
“Being American is more than a pride we inherit. It’s the past we step into and how we repair it,” Gorman said on the steps of the U.S. Capitol two weeks after a mob laid siege and following a year of global protests for racial justice.
“We will not march back to what was. We move to what shall be, a country that is bruised, but whole. Benevolent, but bold. Fierce and free.”
The performance stirred instant acclaim, with praise from across the country and political spectrum, from the Republican-backing Lincoln Project to former President Barack Obama.
“Wasn’t @TheAmandaGorman’s poem just stunning? She’s promised to run for president in 2036 and I for one can’t wait,” tweeted former presidential candidate Hillary Clinton.
A graduate of Harvard University, Gorman says she overcame a speech impediment in her youth and became the first U.S. National Youth Poet Laureate in 2017.
She has now joined the ranks of august inaugural poets such as Robert Frost and Maya Angelou.
Her social media reach boomed, with her tens of thousands of followers ballooning into a Twitter fan base of a million-plus.
“I have never been prouder to see another young woman rise! Brava Brava, @TheAmandaGorman! Maya Angelou is cheering—and so am I,” tweeted TV host Oprah Winfrey.
Gorman’s books are both due out in September.
Third on Amazon’s best selling list was another picture book linked to politics and projecting hope: ‘Ambitious Girl’ by Vice-President Kamala Harris’ niece, Meena Harris.
(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Lyndsay Griffiths. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)
Why brands harnessing the power of digital are winning in this evolving business landscape
By Justin Pike, Founder and Chairman, MYPINPAD
Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.
As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.
As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?
Digital is an essential survival tool, and even more so in a COVID world
No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.
In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.
Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.
The challenges that rapid digital transformation brings to businesses
Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.
Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.
The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.
As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.
But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.
A digital world post-COVID
Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.
There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.
Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.
Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.
Brexit responsible for food supply problems in Northern Ireland, Ireland says
LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.
British ministers have sought to play down the disruption of Brexit in recent days.
“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.
The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.
(Reporting by Guy Faulconbridge; Editing by Tom Hogue)
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