By Mark Jackson, Head of Financial Services, at Collinson Group – a global leader in influencing customer behavior to drive revenue and value for clients.
2018 is set to be a game changer for the relationship between banks and their customers. Driven by the European Commission’s second Payment Service Directive (PSD2), which has now been rolled out across the financial services industry, banks that operate in the EU are now obliged to provide open access to account data and payments, to correctly authorised third parties based on the consumer’s consent. Although not yet mandated within PSD2, the means of providing open access in this way will come from the wide-spread adoption of secure Application Programming Interfaces (APIs).
PSD2 is designed to encourage greater competition and innovation amidst banking and payments across the EU. Combined with Open Banking in the UK – which is the UK Treasury and CMA’s own slant on PSD2 which goes further and faster – PSD2 has the potential to fundamentally change the financial services industry, for customers and service providers alike.
Switching rates amongst current account holders are incredibly low, with just 3% of UK customers shopping around for a better deal. Improved engagement, facilitated by Open Banking, could help banks attract new customers and increase the proportion of people looking to switch.
Some traditional banks have been slow to facilitate use of APIs. However, other banks on the continent are already starting to see opportunities from collaboration with fintechs and other players in a wider banking and payments ecosystem to improve the customer experience and better integrate themselves into the channels customers want to use more regularly.
One example is Brazil’s Banco Bradesco Facebook app, which allows customers to conduct day-to-day banking via Facebook. Meanwhile, Capital One and Liberty Mutual have capitalised on the popularity of Amazon’s Alexa, enabling customers to check balances and pay bills through the voice-activated personal assistant.
- Provides greater customer choice
Open Banking creates opportunities for banks to share banking and payment data, meaning that customer relationships are essentially ripe for the picking. Any company can compete for customers, from incumbent and retail banks, to fintechs and tech giants such as Google and WeChat. Increasing this consumer choice will shift the balance of power to customers who increasingly demand a smarter, more rewarding digital experience.
Reports suggest that a leading social media company sees its average user spend approximately 50 minutes every day on its platform. In stark comparison, a leading global retail bank spends a mere 54 seconds per day engaging with the typical customer.
Banks must maximise the time given to customers by utilising the wealth of knowledge about them made available by Open Banking. The winners will be those companies that combine payment and banking information with behavioural and lifestyle data to offer new, more personalised services. The resulting experience can help secure customer loyalty and differentiate from competitors.
Fintechs working with the banks can also reap rewards, gaining access to an entirely new customer base. Many of these digital companies are in their infancy, so partnerships with large financial institutions offer scale, scope and opportunity not otherwise achievable.
- Delivers a more rewarding digital experience
In an ever-changing digital world, customers expect an intuitive, user-friendly and flawless banking experience. Faster payment options, such as mobile wallets from technology brands like Apple and Samsung, mean that customers have become accustomed to an experience based on convenience. This represents a paradigm shift in customer expectations for rewarding loyalty. People want everything to be delivered ‘on the go’ via apps on their smartphones and other connected devices, slotting in seamlessly to their busy lives.
However, some banks are still falling short of customer expectation, not investing enough in technology infrastructure, and seeing customer satisfaction drop as a result. With the provision of open APIs, banks can encourage collaboration with innovative, agile third parties to create new customer-centric, digital propositions. Rather than only seeing fintechs as competitors, banks should look for opportunities to collaborate and integrate with them as an extension of their own service, offering customers a more fluid approach to their finances.
- Improves engagement through personalised offers
Customers are typically choice-rich and time-poor, so offers need to be individually tailored. The last thing they want is to be bombarded with irrelevant offers, or spend hours searching online for offers that suit them. A poorly targeted offer is more likely to drive customers away than increase brand loyalty.
Leveraging the power of mobile and data from open APIs, banks can better understand customer preferences and offer tailored rewards, sent in the right place at the right time – giving the personalised experience customers demand.
In addition to customer loyalty, providing compelling, timely and contextually-relevant offers will enable banks to create new revenue streams by upselling at optimum moments in the customer’s decision-making cycle.
Customer behaviour won’t change overnight. Two thirds of consumers in the UK say they won’t share their financial data with a third party, but with better education around the issue, customers will soon see the potential.
Open Banking should be embraced, not feared. This long-awaited shake-up places the customer at the centre of the experience, with a focus on engagement and brand loyalty. It could also serve to retain and grow a bank’s customer base, so long as they engage with them in the right way. Whether or not they are impacted directly by EU regulations, those that embrace the opportunities provided by Open Banking will be able to offer customers a greater choice of personalised offers and rewards, delivered ‘on the go’ via apps.