Open banking: banking’s key to customer loyalty

There is a call for banks to step up in the race to provide a better customer experience and hold on to their market share.

The recent publication of World Retail Banking Report 2017 calls for banks to step up in the race to provide a better customer experience and hold on to their market share.
Banks don’t provide the best banking experience.

As strange as that sounds, FinTechs now hold first place alongside other “non-traditional providers” such as PayPal and Monzo. It should come as no surprise then that almost a third of us now bank with one of these. This has understandably the banks nervous as they see their market and mind share slowly slipping through their fingers.

On the flip side, this also opens up a world of opportunity for banks. Savvy business executives are partnering with these would-be competitors to refresh their customer experience offerings.

>See also: 2018: the year open banking shakes up Fintech

New business models are appearing, and the growing use of Application Programming Interfaces (APIs) has third parties clamouring for the treasure trove of data to be unlocked. This represents the move to what we call open banking: a model that is still in its infancy, in need of strict regulation and security, but extremely promising. A more loyal customer base, improved customer experience, new services and their respective revenue streams (for all parties) are all very achievable – but how?

Partner up

Technology has made life “instant.” Today’s era is one of personalised convenience; whether it’s ordering food from your favourite restaurant from an app or the ability to download any show, at any time.

Banks’ processes are not currently this seamless. FinTechs’ are. They’re built on less expensive infrastructure, have no old hat “legacy” technology, and are able to focus efforts on driving value through enhanced, personalised customer experiences for the consumer. Some are even employing gaming software, biometric identification techniques and AI.

Yet banks should not be underestimated. They are veterans of this space and are used to a bit of stiff competition. Credit unions, post offices, brokerages, internet-only banks, you name it, they’ve all entered this game.

>See also: Open banking: a financial revolution?

Unsurprisingly, banks are actually good at the “banking” bit and perform better than disruptors on the fundamental services such as sending transaction limit updates and real-time alerts. They know how to navigate banking networks and regulations and are familiar with new technologies, even if they are slow to exploit them. They have resources that put the flashy VC tech companies to shame, and vitally, they already have a solid customer base.

It’s clear that both sides offer what the other needs. The time has come for traditional banks and FinTechs to combine strengths and drive the customer experience consumers really want.

It’s all about APIs

APIs are not a new concept. Banks have been using private APIs internally for a while and they now form the foundations of key operating systems that improve information flow between legacy systems. It’s the integration of partner APIs from FinTechs that is starting to drive change.

Many banks are still in the early stages of getting business partners on board, but through partner APIs, they gain access to the desirable agility and creativity FinTechs possess, customer databases and established expertise.

This results in both better-quality services and fundamentally, more satisfied customers. For example, instead of logging onto my mobile banking app to transfer money to a friend, I can now send it with social media.

>See also: Game changer: open banking for millennials

This functional versatility is very alluring to banks who typically struggle to keep up with the latest tech. Some early adopters are already one-step ahead. JPMorgan Chase, for example, upped its customer experience game by speeding up loan processing by working with On Deck, a FinTech that uses a proprietary credit score to grant loans to small businesses in a matter of hours, rather than days or even weeks.

Yet partner APIs (in this instance) are still essentially private. They are just around the corner from where the real magic happens, open APIs and open Banking.

Banks, it’s time to embrace third parties with open arms

Banks must collaborate with third parties. It will stimulate the development of new personalised, customer services based on open APIs. Those that don’t think strategically and establish themselves within open banking run the risk of being disintermediated from their customers.

>See also: FinTech innovation under threat from skills shortage

While giving software developers access to areas that have previously unattainable such as balance information, password validations and spending patterns may raise security and privacy concerns, as long as due diligence is taken, opening up to the developer community can do wonders for innovation.

Banks will have access to readymade services and new customer data pools, helping reduce costs, improve customer experience, reduce time to market and offer potential new revenue streams. It’s no surprise that over 91% of the banks we talked to put partnering with FinTechs in their strategy. The game is on, so make sure you keep up.


Sourced from Kristofer le Sage de Fontenay, head of Financial Services of Capgemini Consulting UK

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Nick Ismail

Nick Ismail is a former editor for Information Age (from 2018 to 2022) before moving on to become Global Head of Brand Journalism at HCLTech. He has a particular interest in smart technologies, AI and...