Very few banks can claim to have a mature open banking system and over 65% do not yet have an open data strategy in place at all. The benefits of open banking have turned it into a hot topic for a number of years now, but banks are yet to acknowledge them and take action. What was once seen as a threat to their market position is increasingly being viewed as an unprecedented commercial opportunity.
Indeed, according to a recent reporty by PwC, open banking in 2022 will create £7.2 billion (8 billion euros / 9.5 billion US dollars) in revenue opportunity for the UK market alone, with 71% of all SMEs expected to have adopted open banking in the same year. Among the largest financial institutions, 53% say that they have either already begun their open banking strategy or expect to do so within the next year. However, 24% state they are not considering open banking at all, while another 31% are studying how to go about it.
It’s still very much in its infancy. Very few, if any, major banks can claim to have a mature open banking system in place that is generating significant KPI gains in a consistent manner. And over 65% of banks do not yet have an open banking strategy in place at all. Therefore, there is an abundant window of opportunity for the proactive financial institution to take advantage of in 2022. In this article, we look at three key benefits of open banking that turn it into a powerful asset for banks in the year ahead.
1. Protecting and building on a strong reputation for trust and cybersecurity
Banks are in a unique position in that they are custodians of people’s money. And arguably no other consumer need is more important than the safeguarding of their income and savings. After all, it is the foundation of being able to pay bills and basic needs like food and shelter, and save or invest for their future. According to a survey on Consumers trust on Banks, 73% trust their bank to keep their customers’ best interests in mind. Another survey on personal data protection concerns shows “that people place much higher trust in banks and other financial institutions than they do in other business verticals and the public sector.” However, cybersecurity threats are a big worry for customers in general. Again though, people trust their financial institution to provide the greatest protection compared to organizations in virtually every other industry.
Traditional financial institutions can really exploit this competitive advantage in 2022 and beyond over challenger banks and fintechs, particularly digital-only competitors. One of the main benefits of open banking begins with opening banks up to greater competition, but new kinds of challengers currently don’t garner close to the level of trust that traditional financial institutions do. However, the situation can change and banks can ill-afford to take such trust for granted. A data breach or if competitors were to instill greater trust levels in the public are two such possibilities that could suddenly damage their advantageous position when it comes to customer trust.
2. A new kind of customer experience
Open banking is mandatory in Europe as a result of PSD2 and other regions may follow course at some point. Nevertheless, banks have an opportunity to embrace the benefits of open banking in other regions before they may be forced to, via regulation. There are important reasons to do so.
- It puts them on the front foot, enabling them to take a proactive approach while other financial institutions elect to remain reactive.
- Instead of viewing open banking as a threat, they can imagine the possibilities and analyze the KPI gains that effective open banking strategy execution could generate. By putting APIs at the core of their services banks can improve the customer experience through optimal data use and faster, more precise operational processes. APIs make collaboration with third-party financial service providers so much easier, positioning banks to access expertise and technological innovation from outside their own organization.
- Open banking is a natural inevitability of where the digitization of financial services is going. By leaning into it, banks are future-proofing themselves. They can really level up their own digital transformation performance and use it to turn customer data into an all-powerful workflow and commercial asset that powers a new, customer-centric, business model.
With APIs at the heart of banking customer service, financial institutions will truly be able to provide highly contextualized, relevant, and conveniently, speedily delivered financial services to the entire client base, both retail and corporate.
3. Combining forces with third party specialists via partnerships
When it became clear that open banking was coming with PSD2 in 2018 much of the talk was focused on how challenger banks and fintechs would be able to eat into traditional financial institution market share. However, the reality is that banks can exploit the benefits of open banking to build on their own strengths to provide a much richer customer experience, and with it, enhanced acquisition and retention, and revenue performance, as well as improving back and middle office functions and efficiency.
A key component in achieving this end is in identifying the fintech organizations that, rather than compete with banks, complement them. The bank provides the customer base while the fintech delivers readymade technological innovation. The critical part, however, is choosing the right fintechs as partners. In particular, banks often require human resources with specialist knowledge in data science and product development that truly meets their customers’ needs and wants. This is where specialist fintechs can come in and fill this gap, both for retail and corporate banking.
Most banks are yet to fully realize the enormous potential that the benefits of open banking present. Discover how they are now suitably placed to achieve this in 2022.