Developing a strategy for open banking

Open banking has the potential to significantly alter the way that financial products and services are delivered. Third-party providers, including the big technology firms such as Amazon, Apple, Google and Ant Financial, as well as Fintech’s are looking at how they can exploit the capabilities of open banking and disrupt the financial services market.

In light of this, it is necessary that banks and other financial institutions develop a strategy to ensure they are prepared for the launch of open banking in Australia and can maintain their customer relationships, continue to be relevant and compete in an increasingly crowded market.

So what are some of the key aspects that a financial institution needs to consider as they develop a strategy for open banking?

Firstly, there needs to be agreement on the fundamental characteristics of the business. This requires the answering of questions such as, are you – or do you become – a utility bank that offers core functions of taking deposits and lending money and supports other providers customer facing channels? Do you want to be a central resource in a customer’s daily life and leverage the existing channels and new digital channels to broaden your business lines within financial services and beyond? Do you want to become a trusted advisor and enrich the customer experience with advice based on data and insights?

Secondly, it is important to consider what role open banking plays in a broader digital transformation process. It is likely that a response to open banking will be part of a larger business change program and thus it will need to have a strategic alignment to broader business objectives.

AMP Bank’s Head of Innovation and Change Ryan Gonsalves who has been announced as a keynote speaker at Open Banking Summit in Sydney on 26 September.
If the intention of digital transformation is to bring convenience into the hands of the customer, then open banking, enables the customer to dictate with greater control who can provide those services to them; and for how long, Gonsalves commented.

Digital transformation requires new thinking and thus will involve cultural change and change to back-office processes before the customer facing experience can change. Financial institutions will need to work out how they can think like a Fintech and become more agile and responsive to change. Thirdly, how do financial institutions make sure they don’t lose the customer relationship. The opportunity for third-party providers to disintermediate in the value chain and disrupt the banks relationship with its customers, will be greatly enhanced with open banking and financial institutions need to consider the best approach in addressing this. It may be better to partner with Fintech’s and leverage their customer facing solutions either as white label products or third-party branded. There could be capabilities that big technology companies provide that will enable financial institutions to leverage their channels but retain the customer relationship.

Linked with real time payment processing and increased data and decisioning capabilities then open banking can help to create a competitive ecosystem where traditional banks will have to work collaboratively with partners that sit inside and outside of today’s definition of financial service providers, Gonsalves concluded.

Finally, there is the question of what role data will play. Although financial institutions already have a wealth of data and data analytics capabilities, the financial data they hold will be available to third-parties, some of which – including the big technology firms – have data analytics as a core competency. Will these organisations have a competitive advantage and be in a position to provide better financial insights?

Joanne Henagan, Chief Innovation Officer for Credabl, a specialist Australian lender believes they will. Open banking will provide access to data that is consistent, transparent and intelligible. By analysing the data, we’re able to evidence trends and identify opportunities. In so doing, we devise data-driven strategies that accelerate innovation and deliver relevant products and services.

Hear from both Ryan Gonsalves and Joanne Henegan at:

Open Banking Australia took place last 26 September 2018 in Sydney, Australia

The Summit initiate a debate on evolving practices in data protection and ownership, monetisation strategies, approaches for engaging consumers and more. Open Banking Australia is an opportunity to analyse and to hear speakers share insights from their experience of Open Banking in other markets and industries.

Author: Michael Swannell Associate, Payments Consulting Network.