With a world that is becoming increasingly complex, both consumers and businesses are actively seeking out financial service providers that can achieve their financial goals in a manner that’s relevant and seamless. The fewer steps it takes to achieve any objective, the better.
Open banking provides a unique opportunity for financial services providers to do just this — transforming the way people and businesses manage their money and revolutionising the financial services industry in the process.
Encouragingly the first instalment of our 2020 open banking research — which focuses on open banking attitudes and fintech partnerships — shows that financial executives are more excited about the open banking opportunity than ever before, with a clear rise in the number of European financial institutions that feel positive towards it. And they are putting their money where their mouth is. Our latest open banking research indicates that the median open banking spending lies between €50-€100 million, with 45% of financial institutions indicating their spending exceeds €100 million.
That being said, some financial institutions have missed a trick by approaching open banking purely as a Second Payment Services Directive (PSD2) compliance issue, rather than a strategic initiative that concerns the broader organisation and can create value for both business and customers alike.
To truly succeed and reap the short and long-term benefits of open banking, financial institutions need to look beyond compliance and be prepared to innovate fast. By staying savvy, nimble and open-minded, there is a huge opportunity to get ahead of the competition and enhance the customer experience. But how can they achieve this?
Creating a clear open banking business strategy
While our data shows that there is ample confidence in open banking, it’s also true that many financial institutions don’t fully understand its benefits — something which is holding them back from making the most of the opportunity. Ultimately, institutions where executives are able to translate the opportunity of open banking into a clear strategy are the ones that are in the best position to start realising concrete returns. Most executives will understand that this does not happen overnight.
The good news is that according to our data, 58% of financial institutions indicate that they already have a clear open banking strategy in place. What this shows is that while some financial institutions approach open banking as a long-term strategic play, there are also a growing number of business leaders who see the opportunity for short-term, quick-win value creation.
The truth is that open banking offers considerable short- and long-term opportunities for financial institutions. The benefits shouldn’t merely be seen as something that will be enjoyed in the distant future — they’re ripe for the picking now. So, whether an institution has a long-term or short-term strategy in place, both offer their own rewards. It’s a journey that is likely to start with more elementary open banking use cases and advance to more sophisticated use cases over time.
Specifically, the use cases many institutions are now prioritising relate to the first stages of the customer journey. Many financial institutions are looking at open banking to improve the know your client (KYC) process and to simplify their onboarding, thus accelerating remote and digital access to financial services. This is also where they expect to find the most significant return on investment.
Forging partnerships with fintechs can help financial institutions deliver on their open banking strategies
As well as having clear strategies, financial institutions must also invest time and effort in forging partnerships with fintechs.
Such partnerships can provide financial institutions with the technology, expertise and vision to drive open banking value creation, so it’s extremely encouraging to see that across Europe, 69% of financial institutions have increased their number of fintech partnerships in 2019. Furthermore, the vast majority of executives also indicate that they are working with more than one partner — some even more than five — to realise their organisation’s open banking objectives.
Before entering into a fintech partnership, however, it’s important that financial institutions thoroughly assess a fintech’s technology offering, whilst also carefully scrutinising their capabilities in terms of support, security and integrity.
For a partnership to truly work and reap all its possible benefits, fintechs must be set up in such a way that they become adept at navigating the complex procurement processes and onboarding requirements that many banks have in place and need to be aware of the highly scrutinised and regulated environment in which banks operate. These types of high value and strategic partnerships will be vital to creating both short- and long-term value for financial institutions and, in turn, for their customers.
Ultimately, the positive shift in attitudes towards open banking is evidence for the incredible work that businesses have done to meet the regulatory deadlines. However, there is still work to be done before they can take full advantage of its benefits. But with the coronavirus accelerating the shift toward digital channels, I expect this positivity to continue to grow as more financial institutions concentrate on the digital transformation of products and services. The time for open banking is now and I am excited to see what comes next.