A bright idea for open banking

By Ian Matthews, Data Evangelist at NGDATA

Whether it’s the War of the Currents or the battle between Betamax and VHS, we all know what happens when two or more players fight it out to have their technology recognised as the global standard: one wins, and the other fades into the footnotes of history. But what happens when a new, open standard is applied to an age-old industry like banking?

Not very much, as it turns out – at least, not yet.

Next week sees the first anniversary of open banking across the UK, an initiative designed to enable financial providers to build new services based on access to customers’ banking information. In spite of open banking being launched amid great fanfare, just 22 per cent of UK consumers have so far heard of the standard, while just 9 per cent of people have used open banking services.

Open banking wouldn’t be the first technological initiative to suffer a slow uptake, and the banks themselves don’t seem to be too worried about the current lack of public awareness. Financial law specialists TLT recently found that well over four in five of the UK’s financial companies are investing in open banking products and services, while more 77 per cent say that the initiative represents one of the most radical changes in the financial services within memory.

This presents a once-in-a-generation opportunity for financial businesses of every size and stripe – but only if they can seize the opportunity to deliver services that are meaningful to individual customers. And that requires a completely fresh approach to data.

A lesson from Edison

While open banking will no doubt eventually permeate the public’s consciousness, banks could take some important lessons from the pioneer of some much earlier technology standards. Thomas Edison was much more than an inventor, the holder of well over 2,000 patents: his inventions gained popular currency because he understood how to make them truly useable. Edison understood the importance of creating holistic technological systems. From the phonograph to the lightbulb, he saw individual innovations as part of integrated systems, not as standalone devices.

It’s the same with open banking. The underlying system is not an end of itself, but merely the platform for the development of services that deliver real value to the end user. For banking, with its focus on providing relevant services and even unique ‘experiences’ for all their customers, success depends on having a 360° view of the customer. Whether they are large, established high street brands or small and nimble start-ups, understanding the ‘customer DNA’ will have a huge role to play in the success of their individual open banking initiatives.

Customer DNA provides the “lightbulb moment” for open banking

Open banking has certainly opened the door to fintech and start-up banks stealing customers from more established ones. For example, budgeting apps like Yolt and Chip give customers advice and recommend product offers from other providers. They threaten not only to seize market share from more established providers, but retaining them through greater customer loyalty thanks to their ability to deliver more relevant, personalised services.

Challenger brands shouldn’t be too cocksure, though. The big banks are fighting back and using their large revenues to develop or upgrade their services to capitalise on the open banking opportunity. They already own the customer relationship and have huge amounts of data on which to draw; open banking can be the way to maintaining their privileged position, for example through providing an aggregated view of all accounts in their branded app.

While open banking promises to throw open the doors of banks’ data repositories and make customer information available to all, it’s vital that financial services providers can use this data effectively. The real “lightbulb moment” for open banking will be when institutions can use huge volumes of data to deliver experiences and services that are relevant to “markets of one” – individual consumers.

Whereas banks have traditionally focused on broad demographics, in the era of open banking they will need to have personal relationships with each and every customer. Traditional analytics, with their focus on identifying the past to predict trends, is no longer enough. Banks need to gather data from the multitude of different touchpoints through which customers engage with them, from phone calls, emails, and texts to social media and chat. Only then can they deliver relevant experiences (including, but by no means limited to marketing) to individual consumers based on a thorough knowledge of their “customer DNA”.

Rising expectations require a 360° approach to data

Like businesses in other customer service industries, banks must move to a process which combines long-term historical insights with up-to-the-minute processing of real-time behavioural data. Understanding each customer’s “DNA” will enable banks to determine what products or services they are interested in, and to create a personalised experience where content, products and/or services are presented to customers before they even realise they needed them.

As consumer expectations grow – not least from their experience of similar services from retailers and others – having a ‘customer 360 view’ will become absolutely crucial for banks. Without a centralised and real-time view of each and every customer, they won’t be able to provide a great customer experience, or a tailored set of services.

The promise of open banking is that it will democratise the industry by enabling financial institutions to provide the type of personalised services that used only to be provided for higher net worth customers. To this extent, it doesn’t really matter what point a bank starts from: major high street banks and fintech start-ups alike can only triumph in this new era by undertaking a fundamental shift towards the customer-centric model of business.

Like the invention of the lightbulb, the telephone or the record player, open banking depends on creating a critical mass. Where once this meant having a certain number of phone or television owners, in tomorrow’s world of banking, it requires institutions to be able to use their new data resources effectively to deliver personalised experiences at scale.

Using data to understand customers as individuals? Now that really is a bright idea.