By: Christopher O'Driscoll, head of disruption for financial services at PA Consulting Group
The Second Payment Services Directive (PSD II) and open banking are now only six months away and they will bring an exciting era of change to the financial services industry. At the heart of that change is an opportunity for banks to re-connect with their customers and build trust. Yet there are worrying signs that they could well miss that opportunity.
At a recent conference focused on next generation banking and what is being done to help the industry thrive, there was the impression that the focus is squarely on the compliance challenges, instead of the benefits that open banking will bring.
Using data to get closer to the customer
Compliance has to be taken seriously and will inevitably consume resources, but banks should not use this as an excuse to ignore the opportunities ahead. Effective use of data, and technology's ability to turn that data into real insights, will give banks a new way of getting closer to customers and build new personalised relationships that will increase consumer satisfaction.
Essentially, that means finding ways to support customers to make better financial decisions, lead fuller financial lives, and subsequently build trust between the bank and those who use their services. Part of that is about using the opportunities to cross-sell, for example, offering travel insurance to someone who has just paid for a big holiday. But there's also a chance for banks to play the role of trusted advisor who is able to support customers to achieve their financial goals. This could be through suggesting the money someone saves on a holiday be put towards a deposit for a mortgage. This is now more predictive than current marketing practices, which will help customers budget more appropriately for their goals.
Many banks will be concerned about how the introduction of an open application programming interface (API) means third parties will gain access to customer information that was previously only accessible to them. Clearly, this means the competitive landscape will change and new players will begin to offer more customised products. But banks themselves will have the same unprecedented ability to personalise the banking experience of their own customers and create outcome focused experiences such as completing on a dream home and having an idealistic wedding.
To do this they will need to find new ways to engage with developers of computer applications. This is something U.S. bank Capital One has already taken on by launching a developer portal and three new open APIs. This move signals a significant shift in open banking platforms as change is delivered for the customer benefit in a timelier manner. The new developer portal – named Capital One DevExchange – provides a single point of reference for the bank's engagement with developers, listing their (so far) three open APIs. The portal contains all the features that are now considered best practice for developer engagement including self-serve registration and instant API access, protected (sandbox) testing environments, documentation, and the details of computer code that developers need. One of the most attractive current developments relates to their credit offers API. This is an API where users can submit some basic information about their financial position and in return receive prequalification for specific offers for Capital One services, such as their credit cards.
What is important about these developments is that the new solutions are less about just technology and more about the actual experience and outcomes provided to customers; homes, holidays, weddings being examples of such. While today, the reputation of banks in the eyes of their customers is measured in terms of their range of products or price, in the future they may well be measured more on simply how successfully they help customers achieve their financial goals. Banks should commercialise on the big data opportunity to do this
The data is available and the technology is being developed. What is needed is for banks to develop a good understanding of how they are going to capture, analyse and commercialise this big data opportunity. Those that are narrowly focused on simply complying with the new rules risk missing out and losing their customers to competitors who know and understand them better.
Find out more about our financial services work: www.paconsulting.com/financialservices