The Open Banking Standard, which mandates opening up access to banks’ customer account information through application programming interfaces (APIs) or open banking APIs, will help overcome this limitation.
Globally, the financial services ecosystem has slowly and steadily shun away from its traditional mode of conducting business and has rapidly shifted to the digital mode in the last decade. Global institutions like Banks, Insurance companies, Mutual Funds, Brokerage houses, etc. are now increasingly leveraging digital technologies to improve customer experience and stay ahead of the ever increasing competition. The one aspect that could truly revolutionise the sector is to address the growing customers’ need of instant and real-time services. However, this has been a perennial roadblock for the sector due to the non-availability of accurate customer data points.
Financial institutions have traditionally relied on internal data and credit scores for credit risk assessment. However, this does not give a complete picture as it does not consider prospective borrowers’ assets, liabilities, deposits, investments, and transactions across all financial institutions. The Open Banking Standard, which mandates opening up access to banks’ customer account information through application programming interfaces (APIs) or open banking APIs, will help overcome this limitation.
Successful adoption of Open Banking
Banks need to realise that implementation of Open Banking APIs is much more than just a technological enhancement. A strategic integration could lead to creating multiple revenue streams and gaining more customers. Some of the key things that an API integration should enable for banks:
Acquiring data in a secured manner:
One of the primary focus should be on acquiring key data points from the customers’ financial history in a safe and secured manner. Banks need to ensure the safety of the data which could also allow them to prepare a customer’s profile in order to design better products & services.
Create strategic value added services:
Instead of simply extracting data points, APIs should be used to create meaningful value added services that could improve the overall relationship of the bank with the customers. Services like checking one’s credit score, linking the bank account with multiple financial institutions, seamless payment options, etc.
Generate multiple revenue streams:
Basis the data analytics, banks should aim at disrupting their business model by consistently creating more revenue streams. Launching new cards, creating investment platforms, designing new loans, offering attractive interest rates, etc. are some of the new business streams which could generate some handsome revenues for banks in the future.
Reinventing customer journey seamlessly
Customer centricity has become one of the focal measure of success enabled by Open banking. Banks have now realised the importance of opening up their APIs and collaborating with new-age fintech platforms to facilitate the development of innovative products and services. Today’s customers expect a more proactive approach from banks that could identify their financial needs and customise offerings based on their needs. For example, based on the customer’s purchasing habits in the past, banks could now proactively offer the customers attractive rates for a personal loan, vacation loan, etc. Not only would this increase customer loyalty but wold also significantly improve customer engagement. Depending on the historical spends of the customers, banks could also offer great credit card offers, thereby increasing the customer stickiness quotient.
What Lies Ahead?
Open Banking has already created deep inroads in the financial services industry and definitely is here to stay. For banks looking at disrupting the sector and focussing on growth, it represents a humungous opportunity in terms of customer acquisition and cross-selling of products. It would also help in retaining current set of customers and create a high level of engagement with them.
Source: Business World
