As well-established entities in the market, incumbent banks benefit from loyal customers, brand recognition, and regulatory frameworks. However, with changing customer needs, emerging technologies, and new business models disrupting traditional banking, it can be challenging for incumbent banks to stay ahead of the curve.
Fortunately, open banking offers the chance for high-impact, low-effort wins that allow incumbent banks to use existing data to innovate and compete with new entrants.
If you’re unsure where to start, read on to discover four open banking “quick wins” to improve your institution’s competitive position. We’ll also explore how to overcome initial implementation challenges so your bank can grow.
Challenges for initial open banking implementation
Open finance is still a relatively new addition in some regions, which can cause hesitancy in some incumbent institutions. With ever-changing technologies available, this hesitancy can lead to incumbent banks falling behind, overtaken by new market entrants. As a result, embracing open banking APIs and opportunities is vital for continued success – but implementation also comes with challenges to overcome…
- Budget. At first glance, it may seem that open banking requires a significant investment in both money and time – and that many banks simply don’t have the resources to make it happen. This belief arises especially if they can’t justify the potential investment or do not have the right talent to manage the initiative.
- Talent. Often, open banking projects require specialised skills that incumbent institutions may not have in-house. And even if you do, finding people who are both willing and able to work on open banking projects can be tricky.
- Lack of understanding of use cases. Are you aware of exactly how you can use open banking to your advantage? Incumbent banks are often unsure of the best use cases for open banking and the benefits they can yield. Understanding these benefits is key in motivating banks to invest the necessary time and resources to make open banking valuable. Why not read our guide to 2022 open banking milestones and use cases to gain a better understanding of how your bank can benefit from APIs?
- The desire for a quick win. Open banking can require a lot of work with no guarantee of success. This can make it difficult for banks to justify long-term investment, especially when so many other competing priorities exist.
The good news is open banking doesn’t always require lengthy project timelines yielding little immediate reward. Instead, with the right approach, open banking can help traditional banks stay relevant in a changing world and achieve impressive quick wins.
Open banking opportunities for incumbent banks: Quick Wins
We can categorise quick wins into two different types. Firstly, those that target your bank’s high-priority business outcomes. For example, a bank looking to improve customer acquisition might focus on open banking quick wins that make it easier for customers to open new accounts or switch banks.
And secondly, those that can be common to all banks – simplifying data sharing between banks and third-party providers, for instance. This quick win can benefit all banks, regardless of your specific goals.
To minimise the amount of time and effort required, banks can use data that is already mandated by regulation to offer new services. For instance, you can use account data to create more inclusive financial products and expand your customer base by supporting underbanked individuals.
By focusing on quick wins that deliver value quickly and efficiently, your bank can make significant progress towards its open banking goals.
Here are four quick wins to consider.
1. Offer customers real-time insights
One way you can incorporate mandated data is to provide customers with real-time insights into spending patterns. Offering this information can help your customers develop better financial habits. In fact, allowing users a clearer picture of their financial situation is one of the biggest benefits of open banking.
2. Partner with third parties to enhance the customer experience
Partnering with FinTechs can take real-time data one step further. It allows you to offer customers features such as budgeting tools and digital wallets. By collaborating with third-party service providers, you can create an enhanced customer proposition that appeals to new clients and can ensure you retain existing ones.
3. Leverage open banking APIs to decrease costs
Leveraging open banking APIs and partnering with third parties can also help your bank reduce the need for costly IT infrastructure investments. Doing so allows you to connect more easily with customers and provide the services they need.
By giving third-party providers access to customer data, you can outsource expensive and time-consuming tasks, such as data entry and analysis.
As a result, you can reduce your institution’s reliance on IT infrastructure, lowering costs and improving financial margins.
4. Streamline compliance
While providing real-time data can benefit the customer experience, it can also help banks improve security and compliance protocols.
Real-time visibility into customer financial activity can help you identify and investigate suspicious activity more quickly and efficiently. Open banking APIs also enable you to automate compliance-related tasks, such as monitoring for transaction irregularities and keeping track of changes in regulations. As a result, open banking can help your incumbent bank stay compliant with the latest rules.
All of this improves your chances of winning new business and avoiding costly regulatory penalties.
Embracing open banking
Open finance can help incumbent banks realise a broad range of benefits. However, if you’re in the early stages of your open banking strategy, these four quick wins are an excellent place to start.
Looking for more support? The Open Bank Project is here to drive innovation and scale your partnership effort. Explore our Open Banking API Platform or get in touch to see how we can help your bank successfully embrace open banking.