APIs Are Not Enough. You Need More to Leverage the Full Value of Open Banking
Application programming interfaces (APIs) are not enough. To grow beyond just consuming third party APIs and get into more advanced functions, need to be able to manipulate, analyze data, give users spending and investment suggestions, etc. Banks need APIs that think because the current financial revolution does not allow room for anything less.
Areas Open to Leveraging the Full Value of Open Banking
Customer Experience Enrichment
With the competition that open banking has stirred, ‘customer is king’ means much more as people can freely find and move value between banks, fintechs, and non-financial companies that have leveraged their ability to meet financial needs.
Accordingly, banks need to provide value in more areas, including financial inclusion, improved data control, better customer service, combined SMEs accounting, and lending platforms, etc. This goes beyond APIs that just move account transaction data from one bank to the next.
According to a 2018 PricewaterhouseCoopers (PwC) report, these open banking opportunities should potentially create at least £ 7.2 billion in revenues in the retail and SME markets alone. The financial rewards are worth it; however, for this to happen, the full value of open banking needs to be leveraged.
Financial Management Products
Increased data access and capabilities due to open banking have the potential to transform how businesses and individuals consume financial management products.
Banks already perform advisory functions but face continuous threats from fintech and non-financial companies encroaching into finance. For instance, Facebook recently filed a patent for a product that lets users compare their financial situation to others of the same demographic: leveraging the social network’s massive user base.
The value of such a product is that if a bank’s customer is considering whether to take a job in a new city, they could find an estimate of their expenditure based on what others in a similar demographic are spending. However, they’d need to go to Facebook for that insight.
Through APIs that think, the doors for banks to achieve such functionalities (and beyond) have already been opened. From products that create insights through data analytics from user spending data across multiple banks: to those that track expenses, allow for automatic payments, as well as provide investment advice that combines the power of tech and their banker’s insight.
Open Banking and Credit Scoring
Thin-file customers with a limited credit history present a problem that open banking could help remedy. In the UK, for instance, information used to determine whether someone can access credit or not, as well as in the pricing of loans, includes public records, bank account information, home repossession info, etc. This leaves out many people who have insufficient data despite their need for credit.
Nevertheless, the influx of easily accessible data due to open banking from multiple banks and fintechs showing both individual and business transactions so if this couples with artificial intelligence and significant data capabilities, could provide banks with a better picture of a customer’s financial health: as well as the ability to extend the insight to others who fit a similar profile.
By truly leveraging open banking, banks can enrich their credit scoring and reach more of them (3 out of every 100 UK adults have no access to financial institutions according to a 2017 survey by the Financial Conduct Authority (FCA)). At the same time, decrease default rates from over indebted people.