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The arrival of open banking, first in the UK and then in the European Union, will give the financial services industry a huge boost. By giving customers greater control of their data, the new open-banking APIs will allow them to shop around for a better deal on the widest range of payments and financial-services products. This will increase competition, energise the market, and yield benefits for customers and banks alike.
But, if you listen to many commentators, you might get the idea that this new, connected, financial services market will be a bad thing for banks. Incumbents, so the story goes, risk being outmanoeuvred and beaten to market by nimble fintech competitors.
There’s just one problem with this theory: it assumes that banks are doing and will continue to do nothing to meet this change. Of course, it’s possible that this might happen. But it would be a very odd thing to do, particularly when they — with their established customer base and the trust consumers have in them — actually stand to win from the advent of open banking.
Here are just six of the many ways in which banks, with the right technology and the right approach, can benefit from the advent of open banking and the adoption of associated data-based emerging technologies:
1. Give merchants the payment methods of tomorrow, not just today: increasingly, payment service providers (PSPs) and online merchants are moving customers away from traditional cards to new payment methods; ones that charge lower transaction fees. With the right technology partners, banks can aggregate these new payment methods and offer them to their clients.
2. Beat tech giants at their own game: companies such as Samsung and Apple have already entered the payments market and it seems likely that others will follow. But this needn’t put banks on the back foot. With the right technology and by collaborating with the right partners, they too can offer to customers and merchants innovative products, such as one-touch payments and in-store digital payments.
3. Artificial Intelligence and machine learning can help banks cut fraud and human error: using AI or ML, banks can monitor and analyse millions of transactions. This helps them build a detailed picture of the baseline normal for customer transactions. Once it has this understanding of normal, for customer segments and even individual customers, the AI can instantly spot irregularities and alert the bank to possible fraud, in real-time.
4. Beat money laundering with automated sanctions screening: with machine learning and AI-driven screening software, all the bank’s transactions can be checked against US, EU and other countries’ lists of sanctioned individuals and organisations. This makes it possible to spot potential money laundering before it happens, protecting banks against fines and reputation loss.
5. Move into data-based marketing: with the new competition opened up by PSD2, banks will have to work harder than ever on both acquisition and retention of customers. Fortunately, they have a valuable ally. By using AI to analyse their years, sometimes decades, of data, banks can get a deeper insight into customers, faster — letting them tailor their deals precisely to customer needs.
6. Offer innovative new services: using open-banking APIs, banks can create a layer of added-value services. These include Request to Pay transactions (which considerably lower the barrier to conversion), Enhanced Data for easing reconciliation and Confirmation of Payee, which gives payers greater confidence that their money has gone to the right account.
The first step in working out how your bank can benefit from these and other related technologies and approaches, is to audit what skills, knowledge and capabilities you have in house. Almost certainly, you will have some but not all of the necessary know-how already.
Once you have established which skills and capabilities you need, you can then put together a plan for acquiring them, as fast as possible. Often, the best way to do this is by working with a third-party expert in the field.
Choosing the right partner cuts up-front capital and recruitment costs, speeds up time to market and reduces compliance-related risks. Companies already experienced in working with open-banking APIs and emerging finance technologies can help banks not only ensure the best possible integration with existing systems but also to do so in a way that ensures compliance.
This is an era of unique opportunity for banks, with the right technologies and the right partners, banks can leverage their trusted relationships with millions of consumers to do more than just keep up with the market — they can lead it. But they must move quickly, and they must acquire the skills and capabilities they need to hit the ground running.