2018 will be shaped by Open Banking

For retail banks operating in the EU, open banking - and ‘Open APIs’ which are seen as a key facilitator of this -  have become hot topics in the boardroom.  Spearheaded by the European Commission’s revised Payments Directive (PSD2), banks that operate in the EU will, from Jan 13th 2018, need to provide ‘open access’ to payments and account information to regulated 3rd parties, where customers have provided their consent for this.

In 2018, banks will go further than this regulation dictates to foster more cooperation, collaboration, and innovation with agile fintech firms – helping them to conserve and grow their customer base this year and beyond.

Open banking and the ideals that surround it infiltrate the three biggest trends that I foresee in for the industry in 2018. The legislation positively contributes to banking for both customers and businesses.

1.      The uncompromising nature of customers

Customers expect immediate and excellent customer experience. Fintechs and challenger banks such as Monzo, Curve, TransferWise and Starling are thriving in a space where incumbent banks have traditionally dominated – all by focusing on a very clearly defined value proposition and flawless ‘digital-first’ customer experience which gives them just this.

This trend has also pushed many technology firms into financial services. In a recent retail banking report by Capgemini, tech firms were noted for being more likely to provide customers with positive banking experiences. Of course, you can use mobile applications fluidly everyday now with technology brands like Apple and Samsung all providing their own mobile wallets. In a single day, you can pay for items and services with a connected credit card and use it anywhere, transferring fees or payment via/using your phone.

Engaging and rewarding customers for their loyalty becomes increasingly important to meet sky-high expectations in the digital economy. It is here where the dawn of open banking may help the incumbent banks. It is true many banks are already using APIs to help improve their internal programmes, but most have yet to properly take advantage of the opportunities these present for collaboration with 3rd party companies.   

2.      More personalised rewards and communication

We examined the banking motivations of the affluent middle class in the UK, US, China, India, Singapore, the United Arab Emirates and Brazil – nearly two-thirds (65%) expect greater recognition and reward from banks in return for their loyalty. The research showed those who feel loyal to a brand are 72% more likely to purchase a product from them in the future, and 70% would be prepared to recommend a banking brand to their friends and family. 

Personalisation and breadth of rewards and benefits is key for banks to remain relevant and achieve brand differentiation in 2018. The global mass affluent study found that over half (56%) feel more loyal to brands that know who they are and treat them differently.[1] When asked why they don’t feel loyal to their bank, 41% stated that this was because they are not rewarded for their custom and 33% that they are treated the same as everyone else.

It all comes down to recognising and engaging customers at a personal level and providing an experience matched to each individual. Organisations that are able to collect and analyse customer data are best placed to thrive. Open banking gives financial services access to more information on customers to make more compelling experiences possible. Artificial intelligence (AI) can make it easier for organisations to analyse and understand customer preferences. Those organisations that use this knowledge to personalise the offers and services they provide, will increase brand loyalty, encourage repeat business and generate incremental revenue.

There are many opportunities for AI and digital tools to recognise customers and understand their behaviour in order to offer highly personalised experiences, services, and build loyalty. For example, if a customer uses their card to book a flight, AI could help to suggest relevant, personalised and contextual offers to the customer, linked to their card. This could be anything from an offer for an Uber to the airport or an Airbnb at their destination, to travel insurance or retail offers at the customer’s departure airport. It’s this hyper-personal, relevant and timely experience that is key to meeting modern customers’ evolving expectations.

3.      Traditional financial services gets more digital

Incumbent banks are now reacting to the challenges they face from fintechs and other digital-first players – by investing huge amounts in improved digital capabilities such as apps, chatbots, AI and APIs to help provide a highly personalised, engaging customer experience. The traditional banks are also realising the potential benefits from partnering and collaborating with fintechs, rather than trying to stop them in their tracks. This will be further encouraged and facilitated by open banking.

The development of open APIs and other tools and technologies will help deliver more customised and cross-device payments experiences to achieve the personal touches that millennial customers crave. Increasing open API capabilities will enable financial institutions to both provide and access new sources of data which in turn will facilitate targeted and personalised services to help customers better manage their lives as well as their finances.

[1] Independent research was conducted by SSI Research in Singapore during January 2016 on behalf of Collinson Group. 6,125 consumers within the top 10-15 percent of earners in Australia, Brazil, China, France, Hong Kong, India, Singapore, the United Kingdom, the United States of America and the United Arab Emirates were polled online.