Innovating in the Open Banking Future
By David Murphy, Senior Vice President and EMEA and APAC Banking & Insurance Lead, Publicis.Sapient
The arrival of open banking will lead to the creation of entirely new services and major enhancements to existing services.
The question for banks is whether and how they will play a significant part in a future driven by open data. It represents a challenge for banks, which do not have a strong track record of using data to generate innovative customer propositions, as opposed to improving internal processes such as fraud detection and credit risk management.
It is in that iterative stage of banking that we find ourselves today. For banks, combining data through APIs will allow them to improve customer experience for processes such as account opening, AML checks and product application processes, where personal information can be pre-populated and information verified from official sources.
Where open banking starts to get interesting is looking beyond ‘banking’ to where non-banks begins to play. Once payments services providers have access to transaction data, they will be able to anticipate when customers are likely to need a short-term line of credit and offer their service as an alternative.
As a consumer, I can agree to share my personal or business current account transactions, and for that there may be a limited value exchange. If I share that data I might get, for example, a limited personal finance aggregation service. In time, I might share the mortgage data, or my savings data, or my loans data, which will be opened up for sharing under PSD2 next year.
In Australia, they have chosen to go further and add telco and energy data as well. In the future, I might be able and willing to plug in my insurance data, my health and pensions data, my retail transactional data and more.
The more I choose to share, the more I’m enabling highly personalised services. Moreover, if I choose to share a wide range of personal data, the more predictive and pre-emptive these services can become, and the greater the potential for me to make smarter decisions – or to have these smarter decisions suggested to me, without me having to work them out.
It starts, and ends, with data
When data is the basis for every new service, banks now find themselves in competition with a slew of new providers. The GAFA (Google, Apple, Facebook, and Amazon) have an advantage, as they assemble and analyse data, at scale, as a matter of course. With data at their heart, they are getting ever smarter by building ever-deeper layers of data, allowing them to make behavioural inferences to build more predictive, pre-emptive and personalised services.
For example, you can already use Amazon Balance, a facility the user can top up on and offline; AmazonPay to pay for services; and, if you’re a Prime customer, for every purchase via the facility you get 2% cashback. With Amazon Pay Places, customers can pay for in-store and order-ahead shopping experiences using their Amazon app rather than with a card, cash (even cheques).Amazon also has the scale to disrupt, with more than 100 million paying subscribers to Amazon Prime – or roughly 2.5 times the customer base of HSBC.
Banks hold plenty of data but, over time,its quality is eroding.Check your own bank statement. If it shows entry after entry forApplePay, Samsung Pay, PayPal transactions or consists of some direct debits and a monthly payment to Amex, Visa or MasterCard, your bank should be worried. It is losing visibility of what its customers are doing. Once someone else has created a layer of service that sits on top of the banking utility and doesn’t feed valuable customer data back into the bank, the bank’s own data becomes generic and its value starts to degrade.
How can it then create value from that data? Who owns the truly valuable data and therefore has the right to monetise it? How can the bank feed its fraud detection and credit algorithms properly without detailed, high-quality information?
Creating partnerships of mutual advantage
In an open-data market that banking is becoming, the ability to form the most effective partnerships is a vital skill and a new source of competitive advantage. It will require banks to augment their data sources, expand their analytics capabilities and listen to what the data is telling them.
Banks that choose to engage fully in the new market based on open data will need to focus on the element of their environment that they can control: which organisations they choose to collaborate with to create new services based on pooled data. These will be partnerships of mutual advantage, with the potential to create new sources of profit for both parties that will be shared between them. Banks cannot expect to generate all the business ideas themselves that combining data sources will make possible. Success will come from the ability to collaborate most effectively and be open to ideas from outside.
There is a huge opportunity for incumbent banks to look for ways to use the data they hold to bring benefits to their customers. Assembling richer pools of data from multiple sources will give banks more angles from which to view their customers and more ways to understand them than they could gain from purely transactional information. They could profile and segment their customers more precisely and look for behavioural patterns to refine predictive models. The insights they gain will power new services and improve existing ones within their own defined and managed ecosystem.
As we move away from the mass-market product-push towards services and experiences embedded in our everyday lives, open data has the potential to disrupt financial services.It is a future where individual consumers sit at the centre of their personal worlds and access the services that fit best into their lives thanks to the data about themselves that they choose to share with the brands that they trust.
Banks attempting to alter their approach will find that the challenge cuts right across their business: from how their brand resonates, to how they talk and listen to customers and collaborators; to how they design and deliver services; to how the source, store and analyse data.
Those that succeed will do so by innovating around the data, and associated technologies, as the foundation to build new, hyper-personalised services.They will need to become proactive data seekers that form high-value partnerships with outside organisations, whether it is telcos, energy providers, airlines, retailers or any number of others.
In the open data era that is beginning, banks will gain competitive advantage by collaborating more effectively with other organisations – large and small – to understand and release the value of the informationthey hold on their customers. That requires a different mentality: one that sees open data not just as a regulatory obligation, but also as an opportunity to learn and create new sources of value.
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