Open Banking: A CX revolution in the making?

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Eighteen months ago, the Competition and Markets Authority (CMA) announced it wanted UK banks to adhere to Open Banking by 13th January 2018. How time flies.

So on the eve of its introduction - what is Open Banking, and why does it matter?

Put simply, the initiative is a UK financial sector reform devised by the CMA alongside 'the second Payment Services Directive' (PSD2), in order to help create more competition and innovation among UK banks.   

Open Banking’s remit is to allow all customers of banks backed by UK regulations the option to share their data securely with other banks and with third parties through a single digital app. In turn, this is expected to give people more control of their funds and to compare products depending on their needs.

As of tomorrow, UK bank users will be able to tie different accounts from different banks together to get a single view of their financial position. They’ll also be able to draft in third-party providers to manage their finances, or, based on their own personal situation, recommend new products from across the banking spectrum.

Triumph or disaster?

As explained in MyCustomer and InMoment’s recent report, Customer experience in financial services: Lessons from around the globe, Open Banking comes with a number of obvious concerns for both bank and customer:

  1. The cost to the consumer is that a third party can go ‘rummaging round’ their bank account suggesting cheaper alternatives.
  2. The cost to the bank is that the Open Banking initiative tackles price alone.

As the report states: “A financial services provider who offers a differentiated and superior customer service to its customers will suddenly find itself competing on price in a ‘race to the bottom’."

“However, if handled correctly it can be a real game-changer. For instance, in Italy, Banca Sella has been a long-time advocate of open platforms, using APIs and server-to-server connections for nearly 20 years. It sees the needs of customers being solved mainly by customers themselves and a wider library of APIs came on board to create not only a payment gateway but a banking gateway, enabling customers to interact directly with the bank and a whole array of services.

“Likewise, BBVA has been leading the field in API development in Spanish financial services. BBVA claims that its BBVA Cards API allows firms access to customer information such as obtaining a list of the cards belonging to a customer and check their transactions, limits and expiry dates in real time to reduce costs and improve user experience.”

Enhanced experience

Coupled with PSD2 and European Access to Account rules, Open Banking is set to eliminate the sense of ownership banks once had over customers, especially in relation to their account information and payment initiation.

“The threat is that third parties will offer much better service and add all the value, leaving banks in the background as merely the transaction provider,” warns Banca Sella Group’s CEO, Pietro Sella.

So how is this likely to improve customer experience in the banking sector?

Andrew Stevens, Global Banking Specialist at Quadient believes Open Banking will finally force incumbent providers in the UK to better communicate with their customers.

“Looking at the Open Banking revolution in one way, it can represent a real threat. However, it shouldn’t be seen as a negative development. Banks should see this as an opportunity for change; as the spur for providing great customer communication. Banks need to engage and have a conversation with customers on their terms; providing the right message, at the right time, over the right channel.

“There are three steps that banks should follow to set themselves up for successful conversation with customers: avoid reinventing the wheel by taking stock of the communication tools they already have in place, break down barriers between channels and departments, and finally make sure that there are no hitches when new communication methods are implemented.

“It would be easy to see the new measures as time of hardship. Instead, banks should it as a catalyst for greater customer experience.”

One key concern remains, however – data. With the General Data Protection Regulation due to be implemented in May this year, some are concerned about the lack of understanding customers will have about their loss of privacy when signing up to third parties offering services that can enhance their finances.

The threat is that third parties will offer much better service and add all the value, leaving banks in the background as merely the transaction provider,

And as stated in MyCustomer and InMoment's report:

“Perhaps the most complex issue is educating end users on data permission and privacy,”

“Customers need to realise that consent requires an understanding the implications of sharing before approving – no small feat when the reflexive clicking of “I Agree” on an unread set of terms and conditions is standard.

“In continental Europe, it seems financial services customers do not attach the same value and sensitivity to certain data elements that banks and their regulators do. Compare this to the UK, where banks constantly warn customers not to allow others to access bank accounts, watch out for fraudulent activity, and protect passwords at all costs, and it is not surprising to find UK financial services customers are far more “reserved.””

So whilst Open Banking could be a customer experience revolution, it may ultimately rely on successful communication not just from incumbents but also the third-parties, if consumers are willing to trust it. The potential benefits of this revolution are there, but the hazards are clear to see too.

About Chris Ward

Chris Ward

Chris is Editor of MyCustomer. He is a practiced editor, having worked as a copywriter for creative agency, Stranger Collective from 2009 to 2011 and subsequently as a journalist covering technology, marketing and customer service from 2011-2014 as editor of Business Cloud News. He joined MyCustomer in 2014.

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