Open banking: An opportunity disguised as a threat?
PA Consulting on why meeting customer needs holds the key for banks hoping to emerge as big winners from open banking
Until recently, the big retail banks’ spending on open banking has been dominated by compliance. That’s hardly surprising, given the sensitivities of providing external parties with exactly the right level of access to customer data. But this initial phase is coming to an end. Executives are turning their minds to the future of open banking and working to develop new digital-only services.
In my view, open banking could be the banks’ biggest opportunity for 2019 – and perhaps for years to come. Most customers may not know, or care, about open banking. But banks could, and should, be using it as a springboard for growth.
Of course, becoming a winner in the open banking era is not without its challenges. That’s especially true when it comes to data. Compared with their more agile challengers, older banks often struggle to extract, clean and harness the customer data they already hold. They also worry about keeping that data safe.
Even so, the big banks stand to gain more than they lose from open banking. They have the customer data, and they have the scale. And, crucially, customers are still more likely to entrust their financial data to banks than to more digitally-savvy firms.
In short, the banks have a chance to move beyond their current models and think in terms of customers, not products. They should be asking themselves: How can we solve our customers’ problems? How can we improve their lives?
These are urgent questions. We’re already seeing new customer-centred models of retail banking emerge in the UK, in Europe and in markets including Australia, India and the US. One example comes from challenger bank Monzo, which offers a hassle saving bill-sharing app ideal for young adults living or holidaying together. Another comes from BBVA, which allows customers to photograph a street and immediately find out how much it would cost to live there.
The common theme of these examples is that the experience – easy holidaying, or easy house-hunting – is more important than the product, such as a current account or a mortgage.
Of course, achieving this kind of transformation will require fundamental changes to banks’ current operations. Reversing their view of open banking will allow them to pull in external data that enhances the power of existing customer information. At a minimum, that will require banks to develop new partnerships and connections with external data providers. Some may ultimately choose to transition to a full ‘platform model’ – one in which they enable interactions between customers and a range of products, including those of competitors.
For now, that sort of radical change remains over the horizon. But banks can start moving in the right direction, if they are not already doing so. An agile approach to innovation holds the key to moving from a project-based culture to one that emphasises proximity to the customer. For example, we are currently working with a major European bank to accelerate innovation via ‘design sprints’. These allow the bank to generate, refine and test lots of ideas very quickly. That permits the rapid scaling up of potential successes - and the early weeding out of likely failures.
This sort of agility helps bold banks to take their first few steps towards more customer centric models with relative speed and ease. Those that can use open banking to pivot onto the offensive have the chance to create value in a completely new way – by enhancing customers’ lives.
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