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UNCHARTED TERRITORY: HOW OPEN BANKING CAN HELP BANKS NAVIGATE COVID CHALLENGES

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Opinion from Rafa Plantier, Head of UK and Ireland at Tink

The last year has propelled banks, businesses and consumers alike into uncharted territory. Changes which would normally have spanned years were compressed into months. Financial institutions who had already embarked on the path of digital transformation had to accelerate their plans, and customers of all walks of life had to become acquainted with using digital services almost exclusively.

Rafa Plantier

According to our recent research report ‘Open banking in the post-pandemic world’, 41% of European financial executives believe the shift from digital-sometimes to digital-first during the Covid-19 pandemic will be permanent for the financial services industry.

There are two sides to this coin: it’s indisputable that industry and economies have been weakened as a result of Covid-19. A drop in revenues and profits, regulatory challenges, new disruptive market entrants, and low interest rates, all mean that banks are poised in a delicate position. However, open banking represents a significant opportunity for banks transitioning from analogue to digital, and from closed to open. Here are three ways open banking can benefit financial institutions in the post-pandemic world.

 

Putting innovation in the fast-lane

Covid-19 led to a rapid, unforeseen change in consumer behaviour that meant digital innovation became a need-right-now rather than a nice-to-have. Over the last year, financial institutions had to innovate in real time to ensure business continuity and serve their customers as their needs changed swiftly.

The sense of urgency is palpable across the industry. Over two thirds (65%) of financial services executives surveyed agreed that it’s necessary for banks to increase their speed of innovation as a result of the pandemic, and 74% of financial executives believe the pandemic has increased the need to enhance digital services.

Open banking technology can act as a catalyst to innovation and digitalisation. It can enable access to tools and capabilities which are scalable across geographies, lines of business and customer segments. For example, by using techniques such as recycling code or toggling different data-driven services, banks can short-circuit the time to market for their own digital services.

 

Unlocking commercial opportunities

Legacy revenue streams have recently faced downward pressure and profit lines have begun to diminish for banks. Banks now need to ensure their digital ventures are competitive enough to survive in an increasingly crowded digital marketplace.

Open banking technology helps improve customer value and engagement — crucial as seven in 10 (70%) financial executives believe that the pandemic has increased focus on the customer experience.

It also provides the opportunity for banks to identify customer needs and deliver a personalised proposition shaped to each individual. For example, through account information services, banks can create bespoke user experiences which keep customers coming back. In addition to this, financial institutions can use personal finance management technology to engage with and create value for the customer — giving them invaluable insights to boost their financial health and identify risk areas.

 

Empowering operational efficiencies

Historically in banking, customers were required to transfer several onboarding documents — from proof of address to citizenship status. Not only was this a drain on the customer, but at the other end banks had to manually review and assess the documents provided.

Open banking can expedite everything from customer onboarding and due diligence to risk assessment processes. It simplifies the process for the customer as well as increasing operational efficiencies on the bank’s end, by allowing them to quickly retrieve customer information through connections to their primary bank.

Now customer data can be fetched in real-time and in a machine-readable format, financial institutions can onboard quickly and with significantly lower risk. With 68% of financial executives believing there has been a renewed focus on profitability since the pandemic, lowering costs and enabling efficiencies wherever possible will be make or break for some institutions.

The good news is that the benefits offered by open banking are now also coming to business accounts. At Tink, we are already live with this in the UK and Sweden — enabling companies to leverage business account data to create the same seamless services and enhanced user experiences for business and individual account holders alike. And in a world where customers are actively consenting to access their financial information to get better services, requesting that consent to enable open banking payments and transfers is a natural next step

 

The industry is just at the start of the open banking journey

The appetite for leveraging open banking technology is accelerating, as it climbs even higher on the agenda of executives. Over two thirds (68%) of financial executives surveyed across Europe say that their interest in open banking has been piqued by the pandemic as they recognised its potential to lower risk, anticipate financial distress, increase sales, and enhance customer experience.

As the dust settles, one thing has become clear – open banking has emerged as a vital enabler of gaining a competitive advantage for financial institutions, by improving the customer experience in a post-pandemic world.

To learn more, read Tink’s open banking report ‘Open banking in a post-pandemic world’, here.

Banking

WHY THE TIME IS NOW TO BANK BEYOND BORDERS

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by Lili Metodieva, MD of Monneo

 

As our world becomes more interconnected, so too does the need for banking systems to follow suit. In the past, businesses and individuals were often restricted to banking in a single country, but the rise of borderless banking is enabling both to benefit from greater financial freedoms. In this article, we will examine why this trend is so important and explain how Fintech companies are helping to make it possible.

 

What is borderless banking?

Simply put, borderless banking refers to any bank account, which allows users to spend, send and receive money across different countries and currencies, without incurring heavy fees. The concept has become increasingly popular in recent years, with more people now working in cross-border job roles and with many businesses requiring capital in a different currency than that of their country of origin.

For customers, borderless banking is making cross-border financial transactions more efficient and cost-effective. Through its rise, businesses and individuals can gain easier access to international streams of capital, which is crucial in this current moment of economic uncertainty. In fact, 74% of companies say cross-border payments have helped their business to survive [1].

 

Where do IBANs come in?

International Banking Account Numbers (IBAN) play a crucial role in facilitating borderless banking. The globally recognised system enables cross-border transactions to happen safely, by providing each international bank account with its own unique 36-digit alphanumerical code. On account of this code, financial institutions can quickly identify where funds are coming from, as well as where they’re going to.

More recently, providers such as us have been able to deliver Virtual IBANs (vIBAN). Working alongside a network of well-established European and International banks, we’re able to offer businesses a single platform interface that consolidates the management of all IBAN accounts. In turn, our multi-currency service makes conducting global financial transactions incredibly straightforward.

 

How has Brexit affected borderless banking?

The COVID-19 pandemic has accelerated the growth of borderless banking and services related to it, but other developments, such as Brexit are beginning to stand in its way. Most notably, the drawn-out withdrawal process has seeded a growing reluctance amongst risk averse, larger organisations to settle transactions using UK bank accounts or IBANs, due to unfounded concerns around regulatory complexity.

Despite leaving the EU, the UK remains a member of the Single Euro Payments Area (SEPA), so it’s unclear why these concerns around British IBAN accounts exist. Regardless, this unfortunate development must be addressed quickly as it has the potential to adversely affect the livelihood of businesses and individuals at a time of critical need.

 

What does the future hold for borderless banking?

There’s clear demand for borderless banking and borderless payments, but the discrimination of certain IBAN accounts represents a major obstacle, which could stand in the way of their widescale adoption. Moving forward, there needs to be a push towards borderless IBANs, which will make international financial transactions more reliable. At the end of the day, this is what IBANs were originally created for, so it’s important the current problems are rectified quickly.

To ensure this can happen, the industry needs protection and clarity from regulators. Likewise, it’s now time for membership organisations to stand up on behalf of the sector and lobby for the financial inclusion of businesses.

If the confusion regarding UK IBAN accounts can be sorted in a timely manner, businesses across the nation, as well as those further afield can look forward to a future of more streamlined and effective financial services. With this support, the diverse sector can deliver further access to innovative financial services and products, which improve outcomes for businesses and consumers alike.

As a sector, Fintech has the potential to provide vital assistance to the wider economy, particularly in an era of increased cross-border business. At Monneo, we’re committed to being part of that change and as a part of organisations like ‘Accept my IBAN’, are working towards reporting and ending IBAN discrimination.

[1] – https://www.mastercard.com/news/research-reports/2021/borderless-payments-report/

 

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Banking

IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING

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Eugene Danilkis, CEO at Mambu

 

We are living in an experience economy, and banking is no different. Customers need innovative payment and finance management solutions. New entrants are edging into the landscape and challenging existing players. This should mean users have a better view of their finances and the tools they need to manage their money – but banks are failing to deliver.

Personal finances are a complex beast, emotional pulls are strong, and the worry of financial security is always on the mind. It’s the job of banks to be the shoulders customers can lean on and trust.

Open banking was supposed to take this to the next level, enabling banks to deliver personalised products and services based on improved data sharing and customer insights. But three years on, adoption remains sluggish. So, why is open banking failing to live up to its promise?

 

A missed opportunity

Open banking was introduced to the UK in 2018, but consumers are still mired in confusion as to what it means and how it helps them. According to Mambu’s global open banking survey, 61% of consumers say they’ve never used open banking, despite more than 8 in 10 using one or more mobile banking apps.

Eugene Danilkis

This is a problem for banks and consumers alike. Lack of understanding around the technology is hindering its adoption, despite this being in the best interests of both. By enabling the secure sharing of financial information, open banking creates an improved customer experience. Not only does this minimise friction and make online payments faster and easier, but allows for personalised services and greater automation, enabling customers to take advantage of tools like budgeting apps.

For banks, open banking is an opportunity to build innovative new products that will improve the customer journey, helping them retain accounts and acquire new ones. By collaborating with third parties, banks can hyper-target customers and build services that address specific user needs, increasing customer satisfaction and in turn brand loyalty.

It’s true there’s been a recent spike in open banking users. According to Juniper Research global, open banking users rose from 18 million in 2018 to 40 million in 2021. But this can be traced to the necessities of a pandemic rather than any sudden clarity in communications.

 

Putting customers at the heart of communication

Mambu’s research shows more than half of consumers (52%) have never heard of open banking. COVID-19 may have increased the uptake of the technology, but it hasn’t increased understanding among users.

So, what can banks do to encourage consumers to embrace open banking? Fundamentally, they must better educate their customers in terms they understand. This means talking to them like human beings, using clear and transparent language to simply explain the personal benefits open banking brings and why it’s really just smart banking.

The understanding gap between technology and terminology shows that consumer demand is there, but better communication is needed. Making sure consumers truly understand the tools they’re using, the control they now have over their finances and how open banking improves the customer experience is vital to dispersing the current fog of confusion. It’s the benefits of this technology that banks need to hone in on: customers ultimately care about what open banking can do for them and how it’s going to make their lives easier.

Centering the customer and their needs in this way will allow banks to fully realise open banking’s potential. The technology has already given them the opportunity to develop valuable services for customers that help build brand loyalty. But the industry has failed to put the customer at the heart of their communications and processes, and show them how much better banking can be.

 

Building trust

Key to reversing this trend is addressing consumer concerns around data privacy and financial safety. Yes, banks need to prioritise simplicity and clarity in messaging, but this isn’t an excuse to shy away from important conversations. Just because there’s an understanding gap around open banking doesn’t mean consumers aren’t switched on about tech and financial issues.

Mambu’s survey found nearly three in five customers have concerns about privacy and security in relation to open banking. So, it’s vital that banks provide reassurance and relevant information about data sharing from the outset if they’re to assuage these fears.

The industry can also encourage greater adoption by developing and improving open banking interfaces. Banks are the gatekeepers to how easily end-users can authorise certain actions, manage third-party access and navigate different open banking functions. If the interface is user-friendly, customers will have a better experience of the technology and be more likely to use and recommend these services.

 

Time to get talking

Customer communication is holding the industry back.. The ability of open banking to transform financial services is a concept that industry players are well-versed in. But the feeling isn’t mutual for customers.

Banks are failing to capitalise on the open banking opportunity by engaging with new and existing customers about what the technology can do for them. Debunking  common myths can open the door to increased growth and trust for banks, as they seek to open up new revenue streams post pandemic..

Make no mistake, open banking isn’t going away. But customers will if banks don’t get talking.

 

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