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The financial services industry looks set to change dramatically over the next couple of years in response to COVID-19. The pandemic has certainly highlighted some inefficiencies and weak spots in current processes for many businesses, such as those dealing with a high level of consumer credit checks, for example.
Consumer behaviour has changed – and it’s unlikely to go back to ‘normal’ anytime soon. Therefore, it’s essential financial institutions adapt and evolve to meet this challenge head on. The fact digital businesses have been able to maintain performance due to their advanced processes is a sign that digitisation is the way forward.
A different world
The COVID-19 pandemic has changed the way people live and how they interact with their finances. While the number of people who accessed their finances online or remotely had already grown exponentially in recent years, the prolonged lockdown period has meant that even more have done so.
As a result, financial institutions which have been slower to embrace technology or bring digital tools and experience to market, such as large banks, lenders, and insurance companies, quickly became overwhelmed with customer requests during the crisis. These were largely payment holiday requests, extended credit terms, and policy cancellations, as people looked to navigate their potential income drops.
However, credit lines are stretched, and old credit ratings are now obsolete due to the considerable lifestyle changes consumers have gone through. As a result, historic credit patterns have been made largely redundant in predicting current credit worthiness. Making it even more difficult for financial institutions to keep up with the pace of change, meaning the build-up of client cases has continued to grow.
Path towards recovery
Despite lockdown easing, offices opening, and people returning to the high street, many of the changes enforced by COVID-19 won’t be reversed, particularly when it comes to financial services. People won’t want to queue for hours outside the bank if they can access the same service instantly online. Additionally, businesses won’t want to wait days for applications to come through for financial products such as loans, when they know open banking enabled services can provide instant credit decisions.
As such, the adoption of such technology is likely to accelerate, acting as an enabler in bringing to market innovative solutions to both businesses and consumers. In the post-COVID era, the future of financial services will most certainly be digital.
New forms of digital payments are well placed to meet those new consumer expectations, with personalised experiences and enhanced functionality. Payment initiation services (PIS) are one such type of payment. PIS is a service derived by the creation of open banking APIs and makes online purchases simpler and more secure for consumers, as well as making selling products and services cheaper and faster for vendors.
This is because PIS allows businesses to initiate payments directly from a customer’s bank account, removing the need for a credit or debit card, but maintaining the customer’s total control over their finances at all times. PIS means bank transfers are now an easy way for consumers to go about their everyday shopping.
Account information services (AIS) are another core pillar of open banking, stood ready to evolve the financial service sector. AIS helps users import transaction information and can help businesses determine the best time to request the direct debit or when to send an official notification for payment. This means that businesses can provide better services to customers at the same time as improving their back-end processes – AIS is a win-win for everyone.
Banks and other financial companies who undertake data enrichment projects will also find themselves in a mutually-beneficial position with consumers. Through enriching a consumer’s transaction data, banks can de-mystify the sometimes-confusing data, and make it easier for consumers to understand their own spending and saving patterns, creating a more personalised experience that will help to retain the consumer. At the same time, making the most out of the data can help businesses understand what services and products work best with consumers, and shift their priorities accordingly to perform better.
Changing hearts and minds
For companies willing to make the digital step, the options to evolve how they interact with consumers and other businesses are plentiful, from PIS to AIS and Data Enrichment.
Different industries are at different stages along the open banking growth journey and as such the state of play and the potential opportunities vary considerably between Sectors. For banks, open banking does not so much present an opportunity to get ahead, as a measure to ensure they aren’t left behind. The power of open banking is central in an era where consumers demand one click, on the go access to their finances, as shown by the rise of challengers and mirrored in the vast investment by incumbent institutions to keep pace.
However, for retailers as an example, the open banking journey is just beginning and the adoption of PIS, AIS and Data Enrichment functionalities represents a tremendous opportunity to steal a march on the proverbial high street and deliver the service that sets a brand apart in the eyes of consumers across Europe.