By Ian Matthews, Data Evangelist at NGDATA
Tech history is littered with tales of two systems fighting each other to the death – Mac versus Windows, HD DVD versus Blu-ray. This is not one of those tales. Instead, the first year of open banking is the story of one open standard being applied to a complex and varied industry – and it’s only just beginning. Without the impetus of head to head competition, what has the initiative yielded so far for the customers it champions?
Not very much, as it turns out – at least, not yet. In spite of open banking being launched amid great fanfare, just 22 per cent of UK consumers have so far heard of the standard, while just 9 per cent of people have used open banking services.
Open banking wouldn’t be the first technological initiative to suffer a slow uptake, and the banks themselves don’t seem to be too worried about the current lack of public awareness. Financial law specialists TLT recently found that well over four in five of the UK’s financial companies are investing in open banking products and services, while more 77 per cent say that the initiative represents one of the most radical changes in the financial services within memory.
Finally unlocking the customer DNA
Open banking has certainly opened the door to fintech and start-up banks stealing customers from more established ones. For example, budgeting apps like Yolt and Chip give customers advice and recommend product offers from other providers. They threaten not only to seize market share from more established providers, but retaining them through greater customer loyalty thanks to their ability to deliver more relevant, personalised services.
Challenger brands shouldn’t be too cocksure, though. The big banks are fighting back and using their large revenues to develop or upgrade their services to capitalise on the open banking opportunity. They already own the customer relationship and have huge amounts of data on which to draw; open banking can be the way to maintaining their privileged position, for example through providing an aggregated view of all accounts in their branded app.
While open banking promises to throw open the doors of banks’ data repositories and make customer information available to all, it’s vital that financial services providers can use this data effectively. The real “lightbulb moment” for open banking will be when institutions can use huge volumes of data to deliver experiences and services that are relevant to “markets of one” – individual consumers.
Whereas banks have traditionally focused on broad demographics, in the era of open banking they will need to have personal relationships with each and every customer. Traditional analytics, with their focus on identifying the past to predict trends, is no longer enough. Banks need to gather data from the multitude of different touchpoints through which customers engage with them, from phone calls, emails, and texts to social media and chat. Only then can they deliver relevant experiences (including, but by no means limited to marketing) to individual consumers based on a thorough knowledge of their “customer DNA”.
Customers turn up the heat on complacent providers
Like businesses in other customer service industries, banks must move to a process which combines long-term historical insights with up-to-the-minute processing of real-time behavioural data. Understanding each customer’s “DNA” will enable banks to determine what products or services they are interested in, and to create a personalised experience where content, products and/or services are presented to customers before they even realise they needed them.
As consumer expectations grow – not least from their experience of similar services from retailers and others – having a ‘customer 360 view’ will become absolutely crucial for banks. Without a centralised and real-time view of each and every customer, they won’t be able to provide a great customer experience, or a tailored set of services.
The promise of open banking is that it will democratise the industry by enabling financial institutions to provide the type of personalised services that used only to be provided for higher net worth customers. To this extent, it doesn’t really matter what point a bank starts from: major high street banks and fintech start-ups alike can only triumph in this new era by undertaking a fundamental shift towards the customer-centric model of business.
The vital moment for open banking, as with any new standard in technology, will be reaching a critical mass of adoption. Financial institutions, whatever their size and approach to business, need to get a handle on their data assets now to be ready to compete as the banking landscape shifts in response to increasing awareness. The regulator may have introduced open banking, but it is down to individual institutions to make it work for them – and ultimately their customers, if they want to keep them.