Open Banking is considered to be the catalyst that will transform the UK banking industry. As traditional banking models evolve, new opportunities to acquire customers, minimise risks and enhance customer experience are starting to appear.
Banks that succeed will be those who can gain the confidence and trust of their customers to share data. Educating your customers will be pivotal to the success of Open Banking. By educating customers on the value of sharing their data, it will support you with the delivery of better value services that are not only secure, but easy for them to consume and personalised to their needs.
Here are what I believe to be the 6 opportunities for you to consider when thinking about how to implement Open Banking to grow your business:
1) Acquire new customers
Many organisations are seeing Open Banking as an opportunity to acquire customers. Integral to this strategy is the implementation of digital engagement tools that are efficient, simple and intuitive in their design. The good news is that thanks to transactional and statement data, you will now be able to access more detailed information on a customer’s financial situation. This, in turn, can be used to identify which are the most appropriate customers to on-board.
Transactional data can provide a lot of information on a customer that can inform your understanding of them and their financial behaviours. Having access to this more detailed behavioural data enables you to segment and prioritise customers based on their risk, lifetime value and/or growth potential. You should think about how you can improve on the insight you already have, to help you match the risk profile of targeted customer segments to your credit risk strategy. Open Banking presents a great opportunity for you to refresh your growth strategies and realign your acquisition processes.
2) Become more relevant – use your brand equity
Banks have a wealth of brand equity. Established players should position themselves at the outset to become advocates of Open Banking. But why?
Historically many banks have relied on limited data such as demographic and personal preferences. Unlocking the transactional data within your systems will present new opportunities to look at customer behaviour to identify the most beneficial data partnerships for both you and your customers. For example, transactional data will reveal those items most frequently purchased by customers for which discounts could be offered in collaboration with retail partners. This has the potential to deliver a greater level of personalisation in the provision of services to the customer and an opportunity to strengthen and grow your relationship with the customer by demonstrating that you understand their needs.
3) Balance multi-channel touchpoints
As we outlined in our Open Banking white paper , face to face banking interactions are reducing. 427 million customers visited a branch in 2015, compared to 895m logins made via a mobile banking app. Personal contact is forecasted to drop to 268m by 2020, while mobile usage is set to double to 2.3 billion. It is also important to note that more than 20m customers don’t use online banking1. As well as educating customers to the benefits of online accounts, banks will also have to find ways to service customers via the branch if you are to maximise the benefits of Open Banking.
With digital continuing to dominate the landscape, some customers will still want face-to-face contact, particularly when seeking financial advice. As such, multi-channel touchpoints need to complement each other. Open Banking could provide an opportunity to deliver a service that allows your customers to transfer their data regardless of the channel they are using. As a result, you are able to offer a seamless customer experience and verify them on every channel.
4) Minimise risk
Accessing credit has to-date been based on historical data sourced from third parties such as Credit Reference Agencies (CRAs). Open Banking provides the opportunity to access more detailed information – with the customer’s consent – on current and historical income and expenditure through statement data. This holistic view of transactional behaviour could provide a more complete picture of a customer’s financial status. Data, (provided in real-time) could allow you to make accurate decisions on the eligibility of your customer immediately. You can then qualify their suitability for a product. For example, using more accurate data within affordability assessments, means you can manage their risk profile, enhance decision making with instant decisions and improve the quality of a customer’s experience. The outcome is that customers will be able to access credit based on a more detailed understanding of their ability to repay the loan.
5) Reduce debt
According to the Money Charity, the average total debt per household, including mortgages, at the end of May 2017 was £56,632. Outstanding credit lending was £190bn and 264 people a day are currently declared insolvent or bankrupt. Open Banking provides an opportunity to address some of the challenges associated with debt – with a unique chance to help your customers reduce their risk of falling into arrears. Access to transactional data allows you to better understand customers’ financial status. You can collaboratively work together to help them manage their finances, providing value added services such as alerts or supporting customers who experience difficulties with a view of their entire financial portfolio. This will undoubtedly contribute towards reducing the overall burden of national debt.
6) Deliver better customer experiences
Today, customers expect instant service and a high-quality product offer. They want this given to them in a way that is easy to use and consume, 24/7 and personalised. To do this, they still need to accept their data will be an enabler. Helping your customers extract the value from their data and improve their lives through its appropriate use, is important. Pre-qualifying customers for products could help you to provide an improved customer experience, increase conversions of credit applications. It can also help you reduce friction early in the customer journey.
Open Banking and Open Data bring a great opportunity for banks. As we have explored, it presents an opportunity where you can use insight to inform decisions but also better engage with your customers. While we are at the start of this journey, we are not far away from its impending launch next year.
Trust, openness and intelligent interactions will be pivotal in any successful strategy. Nothing here has changed, customers have always expected this standard, now they demand it. The unique offer of Open Banking is an enabler to help you meet their needs. It will be interesting to see what the next few years brings. It is an open playing field and an opportunity to realign – leaving legacy processes behind and embracing the opportunities of the future.
This blog is an extract from our Open Banking whitepaper.