A new framework, developed by Vlerick Business School, aims to help financial service providers develop their own open banking strategies. This framework provides a knowledge basis, so that decision makers in financial services can assess their position on the key dimensions of open banking, and set their strategic direction.
The framework is highlighted in a white paper entitled ‘Open Banking: Opening the Gates’, authored by Steve Muylle and Bjorn Cumps, professors at Vlerick Business School, alongside postdoctoral researcher, Willem Standaert. To create the framework, the researchers surveyed 15 experts in the European financial sector, specifically banks, insurers, bigtech, fintech, consultants, and regulators. The researchers then used these results to create a framework which maps out the strategic dimensions of open banking and helps market participants to set a strategic course.
Steve Muylle, Full Professor and Partner at Vlerick Business School says,
“Until now, digital banking was often limited to online and mobile banking applications, in addition to physical branch offices. That means that banks offer banking products via their own closed multi-channel ecosystem. Open banking, however, opens up the door on three fronts, namely products, customers and ecosystems. If banks want to remain relevant, they need to transform.”
The authors suggest three separate avenues in which financial service providers can transform their products, customers and ecosystems, in order to develop their open banking system:
1. Reinventing products
- Offering third-party banking products (e.g. aggregating different current accounts at different banks).
- Offering third-party financial products in addition to a company’s own range (e.g. insurance products).
- Offering non-financial services (e.g. selling public transport tickets via a mobile banking app)
2. Based on the customer’s experience and needs
- Bank-centric: for needs such as saving or investing, the bank is the customer’s logical first point of contact. The bank can meet these needs with its own products via its own channels.
- Bank-customer-centric: the bank needs other players and products to meet the customer’s needs in their customer journey (e.g. purchase of a house). The experts mainly see opportunities in the areas of property, personal financial management, health, and entrepreneurship.
- Customer-centric: financial services (e.g. payment and transaction services) are only a limited part of the customer journey. For example, a customer booking a trip may also need travel insurance. Offering an integrated customer-centric service can play a key role in setting oneself apart from the competition.
3. Competition at ecosystem level
A bank’s own channels are not enough to offer the customer a total experience. Cooperation across sectors is possible in two directions:
- Banking-as-a-Service: the bank is part of the customer journey at a third-party business
- Banking-as-a-Platform: the bank opens itself up as a platform for third parties
- General Purpose Platform: the bank also offers a platform for non-financial services
European regulations on open banking, which are set to enter on 14th September 2019, will force banks to align with the technical specifications, which should allow bigtech or fintech players as well as those from other sectors to exchange financial data or make electronic payments securely. Banks must open to third parties who need bank details to offer their services to consumers.
This new regulation will have a drastic impact on the landscape of the financial sector, likely introducing more competition into the finance sector. Relatively closed banks with a dominant market position must begin to transform into open ecosystem players that embrace digital innovation, and follow a specific strategic direction, like the three outlined in this white paper.