Open Banking has transformed the banking experience, making it more convenient and accessible for consumers. It’s unsurprising, therefore, that it has been hailed as a revolution in financial services — taking the industry by storm.
Over the past year, there has been a positive shift in attitude towards open banking amongst UK financial institutions, with our 2020 open banking research* revealing that 73% are more positive towards open banking than they were 12 months ago. It’s clear that the UK in particular, is a trend-setter globally, with 70% of financial institutions revealing they have a clear strategy in place to realise the full potential of open banking (compared to the European average of 58%).
With coronavirus accelerating the shift toward digital channels, financial institutions should concentrate on the digital transformation of products and services that support their customers in new ways. But how can they achieve this?
Invest wisely and make open banking core to digital transformation
It is extremely encouraging to see that UK financial institutions are ramping up their investments in open banking — moving away from purely PSD2 compliance mindset and towards value creation. In fact, almost half (47%) of UK financial institutions are spending between €1 million to €49.9 million on open banking, while 33% reveal they are spending over €100 million.
It’s clear that the industry is on the verge of a monumental shift towards data-driven solutions — with open banking becoming intrinsic to the digital transformation of financial institutions in the UK. The size of the open banking investments proves that the UK’s financial institutions are now thinking beyond compliance and instead looking ahead to the commercial opportunities it can offer.
In order to reap all the possible benefits from open banking, financial institutions must use their budgets wisely. By focusing on the low-hanging fruit and taking advantage of open banking by operating as a third party provider (TPP), financial executives can experiment with elementary use cases with clear outcomes, before proceeding to more advanced and exploratory use cases. Furthermore, by distributing any budget they have across all parts of their organisation — from IT and product departments to compliance and operations — they can embed an open banking culture throughout the organisation, in the departments it’s most needed.
Forge partnerships with fintechs
Financial institutions must also invest time and effort in forging partnerships with fintechs as this can give them access to the data and technology that will allow them to build innovative new propositions at scale — often for a wide array of use cases beyond the limits of the current PSD2 regulation. It’s therefore encouraging to see that 33% of UK financial institutions already have at least one fintech partnership in place and that 43% are looking to establish open banking fintech partnerships in the near future. Moreover, half of the financial institutions in the UK with a partnership also indicated that they have increased the number of open banking fintech partnerships over the past 12 months.
In order to maximise the possible benefits from any such partnerships, however, they must first thoroughly assess a fintech’s technology offering, whilst also carefully scrutinising their capabilities in terms of support, security and integrity. By doing this, financial institutions can make sure that their fintech partners are set up in a way that means they can navigate the complex procurement processes and onboarding requirements that many large banks have in place.
Realise the short-term value creation opportunities
For those in the industry, the benefits of open banking are obvious. It promises an improved customer experience, new revenue streams and a sustainable service model for underserved markets. Today, as we wrestle with the new social and economic realities of life with COVID-19, it’s vital that the UK’s financial institutions continue to prioritise the development of innovative banking solutions that are tailored to the individual circumstances of customers and businesses.
Going beyond compliance and focusing on the competitive and innovative nature of data-driven financial services, as well as prioritising high-value and strategic partnerships, can deliver immediate value to financial institutions — unlocking new market opportunities and helping them support their customers in new ways by providing financial services seamlessly over digital channels.
Rafael Plantier, UK and Ireland Country Manager at Tink