OPEN FINANCE: MEETING THE DEMAND FOR INNOVATION IN THE FINANCE INDUSTRY

Anthony Badger, FS&I API Lead at Axway

 

The global finance industry is increasingly influenced by growing demands for innovative digital services from a diverse customer base that is more prepared than ever to shop around. In 2020 alone, for example, over 700,000 people in the UK switched their current account and banks are actively marketing their products with this growing trend in mind.

 

In a wider sense, the importance of customer experience has reshaped the way services across the economy are offered, with consumers using the likes of Amazon and Netflix as a benchmark for other digital brands. Take banks, for example, with ‘challengers’ such as Monzo, Starling and Revolut, among others attracting millions of customers with effective app-based experiences.

 

According to research by analyst firm Beauhurst, at the end of 2020 there were over 40 active challenger banks in the UK. These brands arrived without the reputational baggage of many of their incumbent rivals and unburdened by legacy technology infrastructure, they have been able to quickly innovate and bring new ideas to market geared towards offering a rewarding experience to the customer.

 

Anthony Badger

For many people, this message is compelling. Technology not only enables banks to have deeper and richer relationships with consumers and create a more attractive, customer- centric service, but with these startups now also entering the mortgage, insurance, foreign exchange and even cryptocurrency markets, traditional finance businesses are increasingly looking to reshape their relationship with technology, and in doing so, reconnect with customers.

 

This is a critical consideration because customer churn has become very expensive, when a better alternative is to provide a superior experience that keeps people loyal over the long term. The problem is that it’s very hard for big banks to introduce new innovative financial products quickly, with many not planning to change their backend systems of record.

 

Key to ongoing innovation, however, is the wider adoption of open finance – an approach which uses and shares customer data across multiple finance sectors in a holistic way to deliver a better, more integrated set of services. Open finance is a vision for a much bigger ecosystem that includes more information about the financial status of an individual, but also connects with other platforms and companies to offer those individuals a more integrated means to manage their finances and consume financial services.

 

With the open banking regulatory groundwork already laid, it’s time for banks and financial organisations to open more of their Application Programming Interfaces (APIs) to give third parties access to the financial information needed to create new apps, invent innovative new experiences, and create a financial ecosystem that accelerates and sustains digital transformation.

 

For example, the open finance model enables someone with a smartwatch to understand and manage both their health and spending status from the same device, whilst returning loyalty rewards to the user in exchange for the use of data from the watch via a series of 3rd party providers. Powered by open finance APIs, a health app could also offer its users improved terms for their health or life insurance by retrieving lifestyle-based products based on their health statistics.

 

The digital transformation required to deliver these changes relies on the integration of all the legacy and modern technology applications in banks, while API management allows banks to build marketplaces and ecosystems that help them to meet customer needs. Key to the approach is removing complexity for both internal and external developers of banking applications by automating their processes so they can concentrate on transformational frontend tasks rather than legacy integration at the backend.

 

The changing financial ecosystem means that for some customers the financial process doesn’t even begin by interacting directly with a financial services organisation. One leading automotive manufacturer, for example, has integrated car purchasing with insurance so when buying a vehicle, customers can also buy cover at the push of a button without having to provide any additional information. Down the road, these drivers will also be able to subscribe to services where their car can find, reserve, and pay for their parking space, or order and pay on their behalf when going to drive-throughs, all based on preferences the user has previously registered.

 

Looking further ahead, a wide variety of companies will implement different APIs in the open finance era, with banks inviting other businesses to be part of their ecosystem. And in turn, the banks themselves will also be part of other ecosystems, resulting in more integrations between organisations and more offers available to consumers.

 

Banks and finance businesses the world over are acting on the need to bring new ideas to market. As the challenger brands compete for market share and the traditional players adapt to changing customer expectations, they are setting the tone for wider, tech-led innovation across the finance sector as a whole. In doing so, customers will not only benefit from greater competition and choice, but from a more integrated set of services that meet the needs of a digital-first generation.

 

spot_img

Explore more