By Rob Haslingden, Head of Product Marketing & Propositions, Experian UK&I

 Open Banking will transform how customers and banks interact with each other. It’s an exciting time that promises to shake up the way the industry operates for the ultimate good of all parties – if everyone can make a success of the changes ahead.

Rob Haslingden

Indeed, the introduction of the Current Account Switching Service (CASS) in 2013 has already made the process of switching accounts much easier for customers, but one in four still aren’t aware of this service, so work still has to be done to convince customers of the merits of switching provider where they could receive better service.

The Competition and Market Authority (CMA) wants everyone to be aware of the opportunity to switch – and the ease of doing so. Open Banking will allow price comparison sites to compare the benefits of different current accounts for customers so they can make more informed choices as to who they should bank with.

Under the Payments Service Directive (PSD2), organisations who make payments will be seeking permission from the customer to access their banking details to process a payment on their behalf. PSD2 allows for the creation of Account Information Service Providers (AISP).

Organisations that issue payments can – with the consent of a customer – access all of their accounts across multiple banks to provide a consolidated view of their income and expenditure. PSD2 will accelerate the pace of change and increase competition by allowing more organisations to provide services such as payment initiation that previously had been limited to a few.

The UK is seen as one of the world’s leading Fintech centres and this has already made an impact on the provision of financial services by capitalising on the customer’s desire for simple, personal, digitally-driven services. New technology is seen as a catalyst for change in Open Banking because of its ability to bring new and innovative products to market quickly and cost effectively.

Open Banking and the provision of transactional data is seen as an enabler for these services predicated on the analysis of transactional data to offer of real-time, personalised services to customers.

Whilst the real impact of Open Banking is still to be seen, McKinsey estimates that between 10 to 40% of banking revenues (depending on the business) could be at risk from Fintech by 2025. Data sharing will fuel this risk.

So for those organisations still looking to make sense of the new environment, here are six opportunities to improve the business and make Open Banking opportunities work for them.

Acquire new customers

Many organisations are seeing Open Banking as an opportunity to acquire customers. The acquisition strategy is being managed through the use of new digital based services that are efficient, simple and intuitive. This, accompanied by access to more detailed information on a customer’s financial circumstances, can be used to drive acquisition programmes.

Better insights based on more detailed behavioural data enables providers to segment and prioritise customers based on their risk, lifetime value or growth potential. Providers need to think about how they can engage with customers that match their risk profile to intelligently acquire using this improved insight.

Become more relevant

Many financial services barely differentiate themselves in the eyes of the customer. Failure to differentiate of course reduces the relevance of these services to customers. Product features and pricing are frequently viewed as complex and confusing, and any advice given as biased.

Many banks have relied on quite limited data such as demographics and product preferences in order to tailor their services to individuals. Access to transactional data provides an opportunity to take a fresh look at customer behaviour in order to deepen the understanding of an individual’s financial status and tailor services to create a greater level of personalisation. Linking transactional data with information from other data partners, or using transactional analysis to provide offers and discounts to customers based on their purchasing habits, offers the opportunity to add value and improve the relevance to an individual’s everyday life.

Harmonise distribution

The days of banking being dominated by personal interactions are diminishing. Customers visited a branch 427m times in 2015, compared to 895m logins via a mobile banking app. Face-to-face contact is forecasted to drop to 268m by 2020, while mobile usage is on track to double to 2.3bn. However, it is also worth remembering that more than 20 million customers don’t bank online at all.

Whilst digital is on the rise and will dominate financial services, some customers still want face-to-face contact, particularly when seeking advice. Digital channels and face-to-face contact need to complement each other. Service providers need to use the insight derived from Open Banking to provide a consistent service that allows customers to transfer the data regardless of channel. That’s without the pain of re-identifying and jumping through transfers to new teams that mark the experience of many customers moving from team to team when contacting their banking provider.

Minimise risk

The provision of credit has to-date been based on historical data provided by customers or sourced from third parties such as Credit Reference Agencies. Open Banking provides the opportunity to access more detailed information – with the customers consent – on current, as well as historical income and expenditure. This can be combined with credit information to provide a more complete picture of a customer’s financial status. Data can be provided in real-time so that lenders can make accurate decisions on the eligibility of the customer immediately and qualify their suitability for a product.

Lenders can limit their exposure and manage their risk profile whilst improving the speed of their decision making and quality of the customer experience. The outcome is that people will get access to credit based on a better understanding of their ability to repay the loan. Ultimately, this is better for all parties.

Reduce debt

The average total debt per household, including mortgages, at the end of October 2016 was £55,855. Outstanding credit lending was £190.13 billion and 264 people a day are currently declared insolvent or bankrupt. This is equivalent to one person every 5 minutes and 28 seconds.

Open Banking provides an opportunity to address some of the challenges associated with debt by giving lenders access to data that provides a better understanding of an individual’s financial status, throughout the life of their loan. Lenders can demonstrate their commitment to behave responsibly and work collaboratively with individuals to manage their finances, and therefore avoid the risk of them falling into arrears. In so doing the burden of customer debt can be reduced, massively supporting customers’ financial health, and avoiding the risks of non-repayment to the organisation.

Deliver better customer experiences

The ready adoption of new and more convenient technology has accelerated the speed of a banking transformation that many customers now perceive as the benchmark for a great customer experience – even if it isn’t. The revolution in the adoption of smart technology and mobile banking has become an integral part of people’s everyday lives.

Open Banking will change the way organisations and customers engage with each other. Customers are expecting outstanding service quality, easy to use products, 24/7 availability, transparent pricing and personalisation – all giving a consistent experience. Most importantly of all, customers want organisations to help them extract value from their data and improve their lives. Simply put, organisations that can deliver an exceptional customer experience are those that are most likely to benefit from Open Banking.

By Rob Haslingden, Head of Product Marketing & Propositions, Experian UK&I

 Open Banking will transform how customers and banks interact with each other. It’s an exciting time that promises to shake up the way the industry operates for the ultimate good of all parties – if everyone can make a success of the changes ahead.

Rob Haslingden

Indeed, the introduction of the Current Account Switching Service (CASS) in 2013 has already made the process of switching accounts much easier for customers, but one in four still aren’t aware of this service, so work still has to be done to convince customers of the merits of switching provider where they could receive better service.

The Competition and Market Authority (CMA) wants everyone to be aware of the opportunity to switch – and the ease of doing so. Open Banking will allow price comparison sites to compare the benefits of different current accounts for customers so they can make more informed choices as to who they should bank with.

Under the Payments Service Directive (PSD2), organisations who make payments will be seeking permission from the customer to access their banking details to process a payment on their behalf. PSD2 allows for the creation of Account Information Service Providers (AISP).

Organisations that issue payments can – with the consent of a customer – access all of their accounts across multiple banks to provide a consolidated view of their income and expenditure. PSD2 will accelerate the pace of change and increase competition by allowing more organisations to provide services such as payment initiation that previously had been limited to a few.

The UK is seen as one of the world’s leading Fintech centres and this has already made an impact on the provision of financial services by capitalising on the customer’s desire for simple, personal, digitally-driven services. New technology is seen as a catalyst for change in Open Banking because of its ability to bring new and innovative products to market quickly and cost effectively.

Open Banking and the provision of transactional data is seen as an enabler for these services predicated on the analysis of transactional data to offer of real-time, personalised services to customers.

Whilst the real impact of Open Banking is still to be seen, McKinsey estimates that between 10 to 40% of banking revenues (depending on the business) could be at risk from Fintech by 2025. Data sharing will fuel this risk.

So for those organisations still looking to make sense of the new environment, here are six opportunities to improve the business and make Open Banking opportunities work for them.

Acquire new customers

Many organisations are seeing Open Banking as an opportunity to acquire customers. The acquisition strategy is being managed through the use of new digital based services that are efficient, simple and intuitive. This, accompanied by access to more detailed information on a customer’s financial circumstances, can be used to drive acquisition programmes.

Better insights based on more detailed behavioural data enables providers to segment and prioritise customers based on their risk, lifetime value or growth potential. Providers need to think about how they can engage with customers that match their risk profile to intelligently acquire using this improved insight.

Become more relevant

Many financial services barely differentiate themselves in the eyes of the customer. Failure to differentiate of course reduces the relevance of these services to customers. Product features and pricing are frequently viewed as complex and confusing, and any advice given as biased.

Many banks have relied on quite limited data such as demographics and product preferences in order to tailor their services to individuals. Access to transactional data provides an opportunity to take a fresh look at customer behaviour in order to deepen the understanding of an individual’s financial status and tailor services to create a greater level of personalisation. Linking transactional data with information from other data partners, or using transactional analysis to provide offers and discounts to customers based on their purchasing habits, offers the opportunity to add value and improve the relevance to an individual’s everyday life.

Harmonise distribution

The days of banking being dominated by personal interactions are diminishing. Customers visited a branch 427m times in 2015, compared to 895m logins via a mobile banking app. Face-to-face contact is forecasted to drop to 268m by 2020, while mobile usage is on track to double to 2.3bn. However, it is also worth remembering that more than 20 million customers don’t bank online at all.

Whilst digital is on the rise and will dominate financial services, some customers still want face-to-face contact, particularly when seeking advice. Digital channels and face-to-face contact need to complement each other. Service providers need to use the insight derived from Open Banking to provide a consistent service that allows customers to transfer the data regardless of channel. That’s without the pain of re-identifying and jumping through transfers to new teams that mark the experience of many customers moving from team to team when contacting their banking provider.

Minimise risk

The provision of credit has to-date been based on historical data provided by customers or sourced from third parties such as Credit Reference Agencies. Open Banking provides the opportunity to access more detailed information – with the customers consent – on current, as well as historical income and expenditure. This can be combined with credit information to provide a more complete picture of a customer’s financial status. Data can be provided in real-time so that lenders can make accurate decisions on the eligibility of the customer immediately and qualify their suitability for a product.

Lenders can limit their exposure and manage their risk profile whilst improving the speed of their decision making and quality of the customer experience. The outcome is that people will get access to credit based on a better understanding of their ability to repay the loan. Ultimately, this is better for all parties.

Reduce debt

The average total debt per household, including mortgages, at the end of October 2016 was £55,855. Outstanding credit lending was £190.13 billion and 264 people a day are currently declared insolvent or bankrupt. This is equivalent to one person every 5 minutes and 28 seconds.

Open Banking provides an opportunity to address some of the challenges associated with debt by giving lenders access to data that provides a better understanding of an individual’s financial status, throughout the life of their loan. Lenders can demonstrate their commitment to behave responsibly and work collaboratively with individuals to manage their finances, and therefore avoid the risk of them falling into arrears. In so doing the burden of customer debt can be reduced, massively supporting customers’ financial health, and avoiding the risks of non-repayment to the organisation.

Deliver better customer experiences

The ready adoption of new and more convenient technology has accelerated the speed of a banking transformation that many customers now perceive as the benchmark for a great customer experience – even if it isn’t. The revolution in the adoption of smart technology and mobile banking has become an integral part of people’s everyday lives.

Open Banking will change the way organisations and customers engage with each other. Customers are expecting outstanding service quality, easy to use products, 24/7 availability, transparent pricing and personalisation – all giving a consistent experience. Most importantly of all, customers want organisations to help them extract value from their data and improve their lives. Simply put, organisations that can deliver an exceptional customer experience are those that are most likely to benefit from Open Banking.