Open banking: sustainability with a low cost curve

Gamechanger Open Banking: The customer is king

Amazon, Facebook and Google recognized years ago that data would be the most important currency of a digitized business world in the future. Accordingly, the American tech giants geared their business model early on to obtain as comprehensive data as possible about their customers in order to be able to offer them products and services tailored to their tastes on this basis. For banks, too, targeted handling of data is the necessary basis for a successful long-term customer relationship. The future for financial service providers is open banking.

In essence, open banking means the convenient, simple and modular integration of external services from third-party providers. Ideally, this means that all banking transactions can be mapped and necessary or desired additional services can also be connected directly. Open banking not only strengthens customer visibility, but also promotes the removal of barriers, while at the same time ensuring secure transactions on a technological level. Technically, the aggregation of data and operations is made possible by so-called APIs (Application Programming Interfaces), which implement the dynamic exchange of information between formerly separate applications via open interfaces.

With the European Payment Directive PSD2 at the latest, which allows third parties to access a customer's online banking account and use account data after their consent, it is clear that there is no way around API banking. It offers more choices and potential cost savings for consumers: Customers are no longer forced to receive complete financial services from their house bank, but modules from different providers can be combined as required. Processes such as identity checks, credit checks or additional deposits can therefore be offered much faster and in a highly integrated manner.

Service Strategy: Flexibility and Integrated Portfolio

Both established banks and fintechs are trying to adapt their portfolio to the changing needs of customers. Nevertheless, it is often difficult for them to integrate the potential of digital technologies quickly and flexibly into their business model. As a result, they miss out on the connection with younger target groups who have long been accustomed to completing tasks quickly via app in between. Fintech startups, on the other hand, can align their processes more consistently with customer requirements, as they process and network data obtained through digitization more intelligently and thus gain valuable insights for the further development of their products.

In a short period of time, fintechs have succeeded in penetrating all areas of the financial services industry and taking market share away from established institutions, by reducing administrative effort and simplifying services. As part of the digital transformation towards open banking, it is important not only to expand financial portfolios sensibly, but also to make them clear in order to meet clients' demands for fast and convenient transactions at the same time.

Financial instruments on demand: available immediately and everywhere — and only when needed

In view of the widespread use of digital and interactive services in all areas of life, customers today also demand an optimized and personalized user experience and corresponding service offerings from their financial service providers. The availability of new technologies, the networking of market participants and transparency about services make it easier than ever before to offer customers a new “banking experience.” The main aspect of an open banking ecosystem is the on-demand focus on customer needs. This means that banks will have to reach their customers where users are in the future. The omnichannel approach applies here: Regardless of where they move, which device or which technology they use, customers must be enabled to use all banking services, whether mobile, from home, as website visitors or app users.

An open banking ecosystem has a variety of interfaces from which users can access services. Through so-called tailored finance products, individual solution modules are added for each individual customer. In this way, added value can be created successively and additively, with step-by-step support from the customer. Customers are not overwhelmed with unnecessary features and options. Instead, the solution portfolio grows with the customer's requirements. A win-win situation: the customer receives tailor-made products exactly when they need them and the financial service provider gains valuable insights into the behavior and preferences of its customers.

Sustainability as a success factor: Data analytics for conscious consumers

Many customers expect companies to integrate their services into a holistic sustainability concept. Trends such as ethical banks illustrate this in the financial sector. In the banking sector, however, sustainability was equated for a long time with refraining from investing in the arms and defense industry. However, the concept covers a much wider range of environmentally friendly, socially responsible and ethical business practices. The “Sustainable Living 2020” study by Spiegel Media and POLYCUR shows that customers are increasingly defining themselves through trendy lifestyles such as conscious consumption, fair trade or organic production instead of brands and want to be part of a collective sense of togetherness. In recent years, large financial service providers have increasingly recognized that sustainability and social responsibility are not just fig leaves, but represent important success factors for their business model by opening up new service areas.

In doing so, modern financial service providers, fintechs and digitally transformed banks align themselves with their clients' values. In the connected ecosystem, banks create value networks and form a community in which customers can actively participate. Through data analysis, for example, each customer can be presented with individual sustainability scores for their transactions. Data scientists have long been able to examine transactions for aspects of social or environmental sustainability; the results of the analyses can offer customers who consciously want to live sustainably important insights into the footprints of their financial transactions.

Lessons learned: new roles in the open banking ecosystem

Thanks to digitization, interactions between consumers and banks are now taking place more regularly and professionally. Consumers are now much more informed, know in advance what they want, and expect their banks to provide a wide yet well-assorted range of solutions that also includes products and services from other providers. Banks must live up to this new role with a range of transparent and modularized products that prosumers in the open banking ecosystem can access anytime and from anywhere.

Open banking therefore offers both established and new players a playing field on which they can continue to develop along with healthy competition. Why do everything yourself when you can benefit from each other in the financial ecosystem of the future? Established providers can continue to focus on their core business, such as lending in the background, while leaving the technological expertise and optimised design of touch points to innovative startup partners. Large banks thus benefit from new fields of application, while customers receive their banking services tailored to their needs. Because one thing remains the same: success is difficult to plan without reliable partners.