Martin Häring, CMO, Finastra
With PSD2 and the Competition and Markets Authority (CMA) retail banking reforms looming on the horizon, open banking is set to introduce significant changes to the way banks interact with their customers. But does it pose a threat to the bank CMO, or can it be an opportunity for differentiation?
With the reforms allowing consumers to grant trusted third parties access to their banking data through open application programme interfaces (APIs), there will be a significant technology challenge for banks – particularly with regard to integration with legacy systems.But aside from this, an arguably bigger concern impacting many bank CMOs centres on giving up sole custody of precious customer data. Thisdata,after all, is a bank’s most important asset, and sharing it will be a bitter pill to swallow for those who aren’t prepared.
Putting this discomfort aside,open banking standards deliver numerous benefits for banks, not just from a digital and data perspective but also for CMOs looking to continually grow the business and remain competitive in the market.
Open banking is already stimulating competition between banks looking to attract customers with their digital offerings. For the future, we can also expect an increased amount of collaboration. Banks and Fintechsalike will need to bite the bullet and work together: incumbent firms bring breadth and depth of customers, trust and proven experience, whilst Fintechs and challenger banks have the advantage of innovative approaches to technology and perhaps greater trust and engagement with the younger generation.
This is all part of the future of financial services which will see the rise of a collaborative, open ecosystem where banks, Fintechs, challengers and other industry players will need to work together to further innovation.
But what benefits can a bank CMO expect from open banking?
As open banking comes into effect, banks will need to respond to customer requests to share their data with third parties, but they should also recognise that opportunities will arise if customers grant them access to data held by other banks they have accounts with. There’s compelling evidence which indicates that customers are willing to grant banks access to more personal data to receive a materially improved (i.e. more personalised) service. In a survey from Accenture, over two thirds of consumers reflected these very sentiments.
With access to this additional data, CMOs would be able to build a fuller picture of their customers and use powerful analytics to tailor better and more relevant offers. With this in mind, it’s essential for CRM systems and marketing automation tools to be tightly integrated into the banking platform, allowing the bank to be proactive and responsive to customer needs.
With a more collaborative approach working with Fintechs and third parties, banks will be able to deliver access to new offerings and services much quicker. This buy versus build approach will help banks to reduce innovation cycles drastically, delivering more innovative and varied offerings to customers in a much more efficient manner. Historically, banks have had to make do with doing more with less. In 2017, it’s about doing more with more, with multiple parties cooperating to deliver the substantial business value built upon innovative foundations.
To prevent themselves from becoming irrelevant, banks will need to be taking more collaborative approaches that deliver added value in their offerings. Whilst PSD2 mandates that banks must give trusted third-parties access to customer account data for free, Senior Analyst at Aite Group, Ron van Wezel, suggests banks need to monetise open banking through “value-added APIs”. These services could include data enrichment – consolidating data from multiple sources for purposes such as credit scoring or liquidity forecasting.
A bank’s objective should always be to retain and build on its relationship with the customer by offering richer and more tailored experiences. Although digitalisation as a topic seems to have been around forever, the monetisation aspect of digital is still in its infancy. The shift to open APIs will act as a catalyst – driving revenues upward within successful firms.
Although the immediate concern for open banking is the technology challenge ahead, the smartest CMOs will be those planning their marketing and customer strategies well in advance of the January 2018 deadline for PSD2. Open APIs in banking will expose the market to a wide array of exciting (and challenging) opportunities – and it’s essential that CMOs are able to show a strong return as part of the trade-off in ‘giving up’ their precious data. The CMOs who approach their data smartly, and know their direction well in advance, will be the ones taking banking into the future.