Christian Ball, Head of Retail Financial Services, GFT
Over the last 18 months, retail banks have increasingly debated how they would manage in a post-Payments Service Directive II (PSD2) world. The directive (which came into force on 13th January 2018 in the UK) looks set to shake up the financial services industry, as high street banks go head-to-head with leading tech giants and FinTech start-ups, all seeking a slice of the consumer banking market. In this increasingly competitive landscape, designed to provide consumers with a more extensive and cost-effective array of financial services and products, retail banks need to be thinking seriously about how they will operate in 2018 and beyond.
Find out more from your data
FinTech startups have already begun to show how providing tailored advice and products is winning customer loyalty. You only need to look at the interest being shown in Squirrel and Monzo to see that consumers value having a dashboard that can help them to monitor their spending and understand where they might be able to save. This desire for bespoke guidance was reinforced in our recent research when we found that over half (55%) of consumers would feel comfortable with the bank monitoring their spending habits if it was then able to improve their disposable income through personalised offers, money saving tips, real-time reminders and updates.
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Banks are sitting on a goldmine of customer data, which they should be planning to leverage by adapting their technologies. First and foremost, they should be improve the experience of their customers through greater use of transaction metadata, gained from smart transaction management(STM) and personal financial management (PFM) tools. They should also consider alternative sources of insight, such as social media activity.Banks can only stand to gain if they are able to build a detailed and accurate picture of their customer’s behaviour. The maturity cycle in this area is advancing rapidly and looks set to deliver significant benefits over previous, more manual methods of gathering data.
New models to provide alternative services
With the effects of PSD2 beginning to be felt, consumers will gradually see a range of different financial services and products emerge. Faced with increased competition from tech giants and FinTechs, retail banks need to ensure that they too are offering the different types of new and personalised services that their customers are likely to want in future. If they fail to do so, they may find that their customers (in particular the younger, more mobile ones who have not had a long relationship with the bank) decide to move their account elsewhere.
To meet this challenge, and free up the investments necessary to provide agile and cost-effective operations, banks must move to a Banking as a Platform model (BaaP). Banks should move away from a ‘full stack’ technology environment that requires them to own all of the technology required to offer a service, to one where they can ingest other services they do not own. In this way, banks can efficiently provide added value services for their customers that meet their existing and future needs, using a combination of their own technology, but most importantly, via third-party solutions.
Through a platform banking model that is open, banks can provide customers with enhancements to their existing services plus all of the new services they might require in future, without the heavy burden of the associated infrastructure costs of doing so. Also, more importantly, they can use the time and cost savings created to focus on enhancing their customer service even further.
Changing the culture
One consequence of PSD2 and BaaP is that they push the financial services industry further towards the model of open banking. In addition to updating their technology and platforms to enable them to compete in this new environment, banks will also need to examine their products, services and operations in order to embrace new opportunities.Unlocking the value in open banking models, looking beyond the obvious data and customer experience value will be key for banks in the future.
Exploring ‘marketplace’ initiatives and new ‘utility models’ anchored in the concept of the application programming interface (API) as a ‘product’, delivered through developer-friendly portals will be a major feature going forward. This will drive increased modularity for the value chain of the bank, opening up new income streams, and driving volume based traffic that will help cut the unit cost of manufacture for financial products.
Open banking is a new way of approaching the provision of financial services for customers, and as such, it demands a new way of thinking and new ways of working. Organisations need to develop so that they are both technically and business enabled. Out of necessity, this means that teams within banks in future will be hybrids – they are going to be more agile and have a mix of skills and people. However, this hybrid approach is challenging, as it cuts across the more traditional financial services methodology with its typical siloed organisational structure. Technologists and business leaders must come together and collaborate since it is this united experience that is so important for financial services to get right in the future.
They key priority for retail banks to focus on in 2018, is being entrepreneurial. They may have historically been entrepreneurial within the confines of their product innovation, but now they need to drive an entrepreneurial spirit deep into their go-to-market strategy by reinventing and improving their technology and business structures. Only then will they be able to maximise the opportunities offered by what may well become known as the era of a new ‘open banking revolution’.