Digitalisation and Open Banking are joining forces to change your banking experience

By Tathagata Kandar​

New regulations such as GDPR, PSD2, and MiFID2 are challenging financial organisations to adapt faster to the digital world. However, they are increasingly seen as burdens as businesses race toward compliance. As banks and financial organisations speed up to adapt to the demands of these new regulations, they are at risk of satisfying themselves with surface, superficial changes without truly seeing the necessary, radical shift they need: a true digitalisation.

In this digital world, customer experience and business models are changing and evolving at a head-spinning pace. Faced with demanding regulations urging them to adapt to this changing landscape, banks are faced with a choice. They can become a simple utility provider, working silently in the background to provide a smooth, painless customer experience. Or they can become a customer owner, fully in control of the customer experience. It is the difference between selling coffee beans (utility provider, in the background but crucial to the experience) and being a high-end coffee shop (bringing together different partners: coffee bean providers, bakeries, music, etc. to offer customers a unique experience).

Digitalisation is essential to own the customer experience

To be a customer owner and be able to offer that experience, financial organisation need to adopt digital and see it as more than just a channel to reach their customer. Digitalisation has now become a race to accumulate, manage and use relevant customer data.

High street banks have an advantage in that regard – they have years’ worth of data on very large amounts of customers. However, they aren’t channelling it enough as they haven’t managed to narrow the data down to useful customer insights that could allow them to package new products and make customised offers for their customers. High Street banks have almost everything they need to become customer owners (the infrastructure, the funds, the data), but legacy systems are preventing them from taking that decisive last step.

If banks could manage their customer data efficiently to extract insights and use it to bundle new product or offers, it would create a virtuous circle. These insights will lead to more customers being on-boarded on a specific product or several products which further means banks gain additional data they can use to be even closer to their customers’ needs.

Digitalisation is crucial to gain the analytics and the data-management necessary to create a partner ecosystem with a positive feedback loop – pricing models, tracking partner consumption patterns and product bundling. This is the primary reason for digitalisation becoming the fourth industrial revolution.

Open Banking and digitalisation empower each other

 However, digitalisation can help getting insights on the customer behaviour for products related to the bank. With open banking, banks can gain a greater view of their customers’ behaviours on how they interact with multiple (if not all) products. Through sophisticated analytics they gain insight which they can transform into precise understanding of their customers’ needs. They can then create an adapted product catalogue meeting these specific needs perfectly with products from multiple industries packaged in a context-specific offer.

The way Open Banking and Digitalisation interact is probably more obvious when put in context by an example. Let us take the case of Ivan who banks with National Bank. He visits a mall in London and makes a purchase. Based on the retailer Ivan visits, Tesco, who are partners with National Bank on an open ecosystem, the bank is aware that Ivan is a known chocolate connoisseur. The bank has an SME customer, Chocs Inc., in the mall who sells chocolates. With Ivan’s location information and known retail habits, the bank can choose to send a specific offer to him. Ivan gets a message on his mobile giving him a discount offer on Lindt chocolates at Chocs Inc.

This offer then becomes extremely context specific and more likely to be accepted by the customer. Similarly, based on this data and an analysis of consumer habits, offer bundles and deals specific to the customer’s location and patterns can be created for individuals and their family. This increases customer satisfaction, and can convince their families to join in enhancing product penetration – a win-win for both. 

Banks & Fintechs partnering up to achieve the full potential of Open Banking 

Traditional banks have more data but are not able to channel it into actionable insights. Fintechs, however, have already invested deeply in analytics and are able to channel that data very effectively. Although they are lacking the vast number of customers and therefore the proper data to make an interesting ecosystem.

Placing an “orchestration” layer on top of their system could help traditional banks syphon necessary customer data and make that data available in the right places to be read and acted upon. This is an important step for traditional banks to take if they wish to become a true customer owner and manage their own platform economy.

For now, High Street banks still hold the advantage over their challengers as Fintechs and newer digital banks have much less customers and therefore a lot less data. As they both have something the other needs, the best foot forward is for Fintech and traditional banks to work together. 

Upcoming fierce competition to be part of successful partner ecosystems

An increasing number of businesses are seeing the value of ecosystems as they add new products all the time which consequently enables them to collect more data.

Traditional banks have a natural advantage in becoming a true customer owner at the centre of an ecosystem. As Fintechs need to tap into their pool of customers, collaboration with High Street banks is bound to increase.

As the popularity of ecosystems keeps increasing, more companies will want to join partner ecosystems and competition to join the “best” partner ecosystem will be rife. Organisations managing successful partner ecosystems will be in a very good position on the market to face any future challenges.

This competition to be part of successful ecosystems will extend beyond the Financial Services industry. It will, and in some cases, has already extended increasingly to the Retail sector, Telecoms, Energy and all service providers. Ultimately this intensifying competition will benefit consumers as they will be offered much more beneficial deals that are context specific and closer to what they need.

However, while it affects all industries, it is especially important for Financial Organisations to grasp now, as the new regulations that are coming into force are hastening this competition and intensifying it.

Financial organisations need to understand the implications of the game-changing regulations that will soon come into play. High Street banks have some good cards in hand. It is now up to them to play their hand right, using them to reach a dominant position in the Open Banking game.

Liked the article?
Share this on your social media

I’m in for monthly insights!

  • This field is for validation purposes and should be left unchanged.


Tathagata Kandar

Tathagata, or Teekay is a marketeer working in the financial services domain.