By Anthony Badger, FS&I API Lead at Axway
The banking sector has seen huge levels of change over the last decade and is now increasingly driven by growing demands for digital services and a customer base that is more prepared than ever to shop around. In 2020 alone, for example, over 700,000 people switched their current account from one bank to another in the search for better deals and services.
The widespread emphasis on customer experience has reshaped the way services across the economy are offered, with consumers using the likes of Amazon and Netflix as a benchmark for other digital brands – banks included. As a result, challengers in the form of Monzo, Starling and Revolut, among others have attracted millions of customers with app-based experiences that are positioned as the antithesis of “traditional” banking, instead putting the customer at the heart of the banking experience.
Indeed, according to research by analyst firm Beauhurst, at the end of last year there were over 40 active challenger banks in the UK. These fresh brands arrived without the reputational baggage of many of their incumbent rivals. Unburdened by legacy technology infrastructure or vendor lock-in has allowed them to innovate and bring new ideas to market in a faster, more agile way than seen in the industry before, all the while offering a rewarding experience to the customer.
For many people, this message is compelling. Technology not only enables banks to have deeper and richer relationships with consumers and create a more attractive, customer-centric service, but with these startups now also entering the mortgage, insurance, foreign exchange and even cryptocurrency markets, ‘big’ banks are increasingly looking to reshape their relationship with technology, and in doing so, reconnect with customers.
This is a critical consideration because customer churn has become very expensive for banks, when a better alternative is to provide a superior experience that keeps people loyal over the long term. The problem is that it’s very hard for big banks to introduce new innovative financial products quickly, with many not planning to change their backend systems of record.
Key to ongoing innovation, however, is the wider adoption of open finance – an approach which uses and shares customer data across multiple finance sectors in a holistic way to deliver a better, more integrated set of services. Open finance is a vision for a much bigger ecosystem that includes more information about the financial status of an individual, but also connects with other platforms and companies to offer those individuals a more integrated means to manage their finances and consume financial services. The open finance model, for instance, enables someone with a smartwatch to understand and manage both their health and spending status from the same device, whilst returning loyalty rewards to the user in exchange for the use of data from the watch via a series of 3rd party providers. Moreover, through embedded finance – powered by open finance APIs – that person’s health app could offer them improved terms for their health or life insurance by retrieving lifestyle-based products based on their health statistics.
The digital transformation required to deliver these changes relies on the integration of all the legacy and modern technology applications in banks, while application programming interface (API) management allows banks to build marketplaces and ecosystems that help them to meet customer needs. Key to the approach is removing complexity for both internal and external developers of banking applications by automating their processes so they can concentrate on transformational frontend tasks rather than legacy integration at the backend.
The changing financial ecosystem means that for some customers the financial process doesn’t even begin by interacting directly with a financial services organisation. One leading automotive manufacturer, for example, has integrated car purchasing with insurance so when buying a vehicle, customers can also buy cover at the push of a button without having to provide any additional information. Down the road, these drivers will also be able to subscribe to services where their car can find, reserve, and pay for their parking space, or order and pay on their behalf when going to drive-throughs, all based on preferences the user has previously registered.
Looking further ahead, a wide variety of companies will implement different APIs in the open finance era, with banks inviting other businesses to be part of their ecosystem. And in turn, the banks themselves will also be part of other ecosystems, resulting in more integrations between organisations and more offers available to consumers.
After operating successfully for many decades banks are now embracing the need to bring new ideas to market at a speed and agility the industry has never seen before. As the challenger banks compete for market share and the traditional brands adapt to changing customer expectations, they are setting the tone for wider, tech-led innovation across the finance sector as a whole. In doing so, future generations will benefit from a more integrated set of services that meet the needs of a modern digital economy.