Presented by Envestnet | Yodlee
The open banking global trend is about to change the way financial data is accessed and shared. And it will offer numerous benefits if you’re positioned to leverage it to create innovative apps and solutions. For an overview of the trend, best practices and more, don’t miss this VB Live event!
Across the globe, regulatory mandates are forcing some banks to adopt the open banking model, but along the way it has become one of most transformative trends in the banking world today. It’s the idea that banks can no longer zealously guard their customers’ financial data. Customers should have full control over their data and how it’s used, and be able to voluntarily share that data with other entities.
The trend is buoyed by the boom in new open application programming interfaces (APIs) that connect banks with other institutions, and the global political and social trends concerning privacy and customer data. While adoption is still in the early stages, financial industry pundits are predicting that it is going to accelerate, and along the way, reshape the banking industry entirely.
In the United States, open banking is going to be an industry-driven initiative, unlike the countries where consumer privacy regulations kicked off the change. But U.S. banks should pay sharp attention as these early banks are leading the way in establishing open banking practices and strategies. The shift is going to permanently alter the relationships consumers have with their financial institutions, as well as rock the traditional banking business model.
The benefits of open banking
Shifting from a product mindset to a complete focus on serving customer needs is going to be a key driver of innovation and competitive advantage. If it’s done correctly, U.S. banks can reap some major strategic benefits, such as consumer confidence, more sophisticated digital transformation, and new, more profitable business models that benefit the customer as well.
By giving customers complete control over their data, and being a partner in developing relationships with third parties for other financial products and services, U.S. banks can completely recalibrate their customer relationships in a positive way. While it means opening the field to a larger ecosystem of providers as partners, banks will remain firmly at the center of customers’ financial lives by remaining trusted advisers.
Going all in, or lying in wait?
While the benefits of open banking appear to be great, the stakes are high.
But American consumers have a lot of data privacy concerns, and it’s a particularly sensitive topic, especially among older generations. Millennials and Gen Z are likely to lead the way in flocking to open banking initiatives, but there’s also an opportunity for banks to educate consumers about the benefits of open banking.
Banks gain the advantage of being leaders in the space, if they go all in from the start. But implementing the open banking model for the whole business, from products and customer categories to the third parties it’s necessary to partner with will increase some risks. An aggressive move into the world of open banking could scare some customers away, particularly if they’re not properly educated about their own benefits.
And not being fully prepared on the tech side will sink an open banking strategy entirely, since it relies on the seamless transfer of customer data where and when the customer requests it. Being unable to respond to thousands or hundreds of thousands of customer requests seamlessly could mean major customer attrition. Technical glitches, especially around consumer data, can be an unforgivable sin to consumers in the financial service sector.
Not having a fully realized partner strategy could also be a sticking point. Financial institutions need to develop relationships across a broad spectrum of third parties, as well as ensure that when customers share their financial information, the bank receives something in return, such as shared revenues or customer referrals. Otherwise, this jeopardizes customer relationships and threatens long-term profitability.
Rejecting the status quo
It’s easy to stick with what works now and wait until the open banking trend becomes more firmly established as other institutions take the lead. But that is likely to result in lost opportunities – it is likely that customers will prefer to do business with a bank that offers open banking, and will flock to those institutions.
But it’s possible to selectively implement open banking practices, and take the lead from a position of strength, leaving behind the old product-centric mindset and embrace the customer-centric focus that wins new customers and keeps current customers loyal. Open banking is a major opportunity to consciously and conspicuously insert customers at the heart or a bank’s strategy, build trust, and embrace the new digital strategies that are the future of banking.
To learn more about the open banking model, discover best practices for digital transformation, and hear from thought leaders in the financial services space, don’t miss this VB Live event!
Don’t miss out!
Attendees will learn about:
- The current open banking movement in the U.S.
- How open banking enables innovation
- Ways to manage data security, privacy, and risk
- The benefits of API-based data-sharing
- How to assess your technology for open banking-readiness
- Brian Costello, VP, Data Stategy and Strategic Initiatives, Envestnet | Yodlee
- David Nohe, CEO, FinGoal