War of the Titans: Tech Banks Lock Horns in the Battle for Customers through Open Banking

Unlocking the Future of Finance: The Bold New World of Open Finance

We are moving towards an open finance world in which customers decide who they share their data with. Open finance refers to a transformative movement in the financial industry that enables secure and regulated access to financial data and services through open APIs, fostering innovation, collaboration, and customer empowerment. Open banking, the groundbreaking force that marks the initial step in the evolution towards open finance, is already disrupting the financial services industry, leaving traditional banks scrambling to adapt and keep pace. Open banking has the immense potential to improve financial services’ resilience, revenue streams and customer reach. With open banking, customers can access the most relevant and competitive financial products and services in real-time, leveraging their own data to make informed decisions. What lessons can banks, insurers, retailers and mobile telecommunication companies learn from innovative tech banks?

Mandated by the EU's Payment Services Directive (PSD2) in 2018, it's a game-changer that's not only putting power back into the hands of customers, but also forcing banks to open up access to their data to third parties. The UK, Germany, Spain, The Netherlands and France are leading the charge in Europe, but even non-European countries like Singapore, Australia, Brazil and the North America are catching on to the open banking trend. And this is just the beginning with 50 countries rolling out open banking initiatives, the market size is predicted to reach $128 billion by 2030 with a compound annual growth rate of 27.5%."

The Provocative Power of the Open Finance Revolution

As technology continues to reshape the landscape of financial services, open banking has emerged as a transformative driver that challenges traditional banking models and demands innovative approaches to stay relevant in the ever-evolving financial ecosystem. The disruption caused by open banking has forced traditional banks to reassess their strategies, embrace digital transformation, and find new ways to deliver value to their customers. With the pace of change accelerating, the imperative for traditional banks to keep up with the revolution of open banking is becoming increasingly urgent. Those that fail to adapt may risk falling behind in the dynamic and rapidly changing landscape of modern finance. The open banking landscape is filled with questions. They are not necessarily about the value that open application programming interface (API) integrations can deliver to financial institutions (FIs) and fintechs — that’s fairly well established at this point. Instead, they concern where tech spending dollars should be funneled for the greatest impact for customers and for banking institutions. To catalyze the transformation of banks, insurers, retailers and mobile telco’s towards an open finance world, let's unlock the valuable lessons learned from innovative tech banks. Join me on this journey of exploration and discovery as we delve into the possibilities of open banking and its potential to revolutionize the financial landscape with for example dynamic risk & marketing management, embedded finance and virtual financial assisting. Together, let's challenge the status quo and envision a future where financial services are accessible, transparent,  dynamic and empowering for all." 

Shaping Open Banking Market Developments for API-Investment Decisions

Competition in financial services demands innovation. However, it also leaves institutions vulnerable to a lack of strategic planning — in this case, of identifying how they can best leverage the broadening suite of APIs to align with key priorities. To make effective decisions regarding budget spending in the boards of banks, insurers, retailers, and mobile telecommunications companies, it is essential to understand the transformation of banking towards open finance.

The advent of the open finance world is poised to propel tech banks all over the world like Nubank (Brazil), Revolut (UK), SoFi (USA), Ant (China) and Bunq (The Netherlands) that harness consented dynamic customer data from mobile phones, smartwatches, other gadgets and cars to the forefront of competition. Through real-time value propositions in their apps that enrich the lives of users, these banks have the potential to gain a significant competitive advantage. By leveraging the power of data to offer dynamic, personalized and seamless experiences, they can redefine traditional banking models and create innovative offerings that cater to the evolving needs and expectations of modern consumers. At my company AdviceRobo for example we use user generated dynamic data from open banking, mobile phones and digital application processes for real-time credit approval, pro-active interactions with customers and automatic testing and validation of decision models.  The responsible and strategic use of customer data in this new era of open finance has the potential to revolutionize the financial landscape and shape the future of banking in profound ways.

This open finance era is a market disruption, a battle for supremacy, and the winners will be the ones who can harness the power of open data to win over customers and dominate their industry. With customers now owning and controlling their own data, the era of direct debits and traditional banking practices is coming to an end. Tech banks, armed with artificial intelligence and cutting-edge data analytics, are seizing this opportunity to steal valuable customers and data from their outdated counterparts. They're reshaping the financial landscape, envisioning a future where structured and non-structured data are leveraged to gain a competitive edge.

The old guard is being left in the dust, as the financial world undergoes a seismic shift towards customer-centric, data-driven finance. We are also starting to see fintech disruptors being bought up by banks and other financial services companies and absorbing the function internally. Examples inc Apple acquiring Credit Kudos last year, positioning the tech giant to enter the lucrative “buy now, pay later” space, and Visa acquiring the open banking platform Tink. Are traditional banks, insurers, retailers and mobile telecommunication companies ready to face the challenge, or will they be left behind in this brave new world of open finance and open banking? The clock is ticking, and the stakes have never been higher. Based on my decades-long experience as an entrepreneur in AI and big data, as well as my research on digital banking, I have compiled a list of insights gleaned from digital banks.

Provocative Lessons in Open Banking from Tech Banks

 1. Rigorously remove customer centric roadblocks to sales

Open banking will enhance embedded finance. The pandemic has been a catalyst for change, accelerating shifts in consumer behavior that were once thought to be years away. Online shopping and mobile banking have skyrocketed, defying previous expectations and reshaping the retail industry in unprecedented ways. But traditional checkout methods are struggling to keep up with the demands of modern-day shoppers. Friction in the purchasing process leads to cart abandonment, lost sales, and customers taking their business elsewhere. Tech banks offering embedded and mobile finance solutions invest in deep automatic categorization methods, building 360 degrees customer profiles that they leverage in dynamic personalized embedded value propositions that improve financial lives and businesses. They invest in designing intuitive, user-friendly, and seamless interfaces for their digital platforms and applications because they understand that a positive user experience with minimal friction is essential for customer engagement, loyalty, and advocacy.

2. Strategize

Secondly, tech banks don’t see open finance and open banking as a buzzword, but as a bold strategy that they embrace to win valuable customers and customer engagement in today's cutthroat market. With the potential to increase resilience and enhance customer experiences, open banking offers them a plethora of benefits in building operational resilience, improving revenue streams and customer reach that can't be ignored. They invest in offensive value generating strategies rather than in fixing the legacy strategies.

3. Win the tech race to deliver superior customer experiences

Tech banks have realized the significance of innovation and the need to continuously adapt to the rapidly evolving open finance & open banking landscape. They understand the importance of investing in cutting-edge technologies, such as APIs (Application Programming Interfaces), data analytics, and digital platforms, to stay competitive and deliver enhanced customer experiences. That’s where they spend their money! In building superior digital eco-systems with APIs to third parties, data lakes, machine learning capabilities and digital platforms to serve their customers better. Tech banks understand the power of collaboration and strategic partnerships in the open finance landscape. They actively seek partnerships with fintechs, technology companies, and other stakeholders to leverage their strengths, capabilities, and expertise. They recognize that partnerships can help them accelerate innovation, enhance customer experiences, and create new business opportunities. Tech banks prioritize user experience as a key differentiator in the open finance era. 

4. Win The Data Race

Tech banks recognize the value of data as a strategic asset in open banking. They are leveraging consented customer data to gain insights, personalize offerings, and create tailored value propositions. Open banking is a gold mine for them in for example leveraging granular transaction categorization to find new growth drivers or better monitor their customers’ financial risks. They understand the importance of data privacy and security, and are implementing robust measures to protect customer information while extracting meaningful granular insights to drive business decisions. Tech banks invest in the development of data eco-systems because they know that the ones with the deepest understanding of the customer behavior will be the one that will succeed in building the largest customer lifetime value. Tech Banks are racing to build deeper customer understanding to win big. By investing in data ecosystems, tech banks recognize that the key to building the largest customer lifetime value lies in having the most profound understanding of customer behavior.

5. Stop things and move fast

Tech banks understand the importance of focus, agility and flexibility in the fast-paced world of open finance. They stop things that distract from customer value creation and are quick to adapt to changing customer preferences, market dynamics, and regulatory requirements. They embrace a culture of innovation and experimentation, and they are not afraid to pivot or iterate their strategies based on market feedback and insights. They are willing to take calculated risks and explore new business models, partnerships, and technologies to stay ahead of the competition. Their investments go into market launches of value propositions and adapting them towards superior customer experiences. Also, they move fast and break things! They prioritize time-to-market over perfection. Instead of waiting for a flawless product, open banking applying companies should aim to launch quickly, gather customer feedback, and make improvements on the go - even if it means releasing a 'half-baked' product initially." 

Disrupt or Be Disrupted!

In conclusion, the war for customers in the realm of open finance and open banking is intensifying, with tech banks emerging as formidable challengers to traditional banks and role-models for insurers, retailers and mobile telecommunications companies. The winners in this battle will be those who prioritize customer centricity, embrace innovation and agility, form strategic partnerships, and demonstrate responsible data usage practices. The future of finance is being shaped by the revolution of open finance, and tech banks that can navigate this landscape with strategic foresight. They will be the ones that dominate the industry and redefine the financial landscape for years to come. The stakes are high, and traditional banks must either disrupt or be disrupted in this brave new world of open finance and open banking.