The open future is here: now comes the hard part
The arrival of open banking will (eventually) prompt both entirely new services and major enhancements to existing services. Louise Beaumont, Co-Chair, Open Bank Working Group at Tech UK tells us what this means.
For banks, combining data through APIs will allow them to improve customer experience hugely for processes such as account opening, AML checks and product application processes, where personal information can be pre-populated and information verified from official sources.
But that is an iterative version of today. Where Open Banking gets interesting is looking beyond ‘banking’ to where non-banks start to play. Once payments services providers have access to transaction data, they will be able to anticipate when customers are likely to need a short-term line of credit and offer their service as an alternative.
By reacting defensively and doing no more than comply with the minimum mandated standards for the Open API, some banks will hope to do as little as they can to speed the flow of data out of their organisations, and therefore to carry on as far as possible with business as usual – in a market that is undergoing fundamental change.
This is short-sighted. Assembling richer pools of data from multiple sources will give banks more angles from which to view their customers and more ways to understand them than they could gain just from transactional information. They could profile and segment their customers more precisely and look for behavioural patterns that can be used to refine predictive models. The insights they gain will power new services and improve existing ones within their own defined and manged ecosystem.
One set of potential competitors in the open banking future, the tech titans, excel at this; assembling and analysing data, at scale, as a matter of course. Companies that have data at their heart are getting perpetually smarter because they’re building ever-deeper layers of data. It allows them to make behavioural inferences that enable them to build more predictive, pre-emptive and personalised services.
Banks that choose to engage fully in the new market based on open data will focus on the element of their environment that they can control: which organisations they choose to collaborate with to create new services based on pooled data.
These will be partnerships of mutual advantage, with the potential to create new sources of profit for both parties that will be shared between them. Banks cannot expect to generate all the business ideas themselves that combining data sources will make possible. Success will come from the ability to collaborate most effectively and be open to ideas from outside.
In this new world, the banks will succeed by finding the best fit between their data and that held by other organisations, whether mobile phone companies, energy providers, transport companies, airlines or any number of others. But to succeed in the competition to collaborate most effectively, banks will need the best possible tools for data sharing and analysis. An Open API that complies with the minimum required standard will not be good enough.
What will set the winners apart is the extent to which they go beyond that and actively seek commercial partnerships based on data-pooling. That requires a different mentality: one that sees open data not just as an obligation, but also as an opportunity to learn and find new sources of value.
First published on Finovate on 23rd January 2018.