The financial services industry is at a watershed moment as it faces the demands of the digital age and an era of heightened competition from new market entrants.
Consumers are not just looking for the best price, but exceptional and hyper-personalised services across multiple channels. Retail and consumer goods industries have driven a renaissance in customer experience, and this success has created cross-industry expectations. Customer experience is therefore the new battleground for the banks.
As banks transform into digitally-led businesses, moving away from the traditional reactive style of customer relationships and shifting towards personalised, convenient and proactive experiences, data is the key enabler and lifeblood. This is where “open banking” comes into play, representing a major opportunity for the banks and better service for consumers.
Accenture research conducted globally found that most banks are planning major investments in open banking initiatives by 2020, and two thirds of bank executives stated that open banking will help create new revenue streams. Interestingly, most surveyed believe that open banking provides more of an opportunity than a threat.
The idea of open banking is to securely unlock the black box of consumer data held by banks, and allow third parties such as retailers, fintechs and technology companies access to that. This will enable consumers to benefit from the power of their data, through a wider set of available services and customisable experiences, ultimately offering greater value and choice.
The history of open banking can be traced back to long term efforts in the European Union to create a unified and standardised payment area across member states, which evolved into the Payment Services Directive 2 (PSD2), ratified in January 2017. This has acted as a catalyst for other global markets, with Japan recently introducing similar regulations.
Australia’s new Consumer Data Right (CDR), unveiled last November, will give Australians access to their banking, energy, phone and internet transaction data to allow them to compare products and services more easily. The financial services sector will be the first to embrace these new rules, following the lead of the EU and other markets with an open banking regime, phased in from July 2019.
Despite recent turmoil in the local financial industry, recent research by Accenture about consumers’ preferences and knowledge of open banking in Australia found that banks still overwhelmingly enjoy trust from consumers – with 84 per cent only trusting their own bank with financial data, even if a third-party provider offered added benefits. This is a strong position compared to similar research from the UK which found this figure to be just 59 per cent.
The flipside to that, and a key reason that the traditional banks should not rest on their laurels, is that the emerging generation of consumers are much more receptive to open banking, which could have a big impact on the financial sector. Accenture’s recent research found that young Australians are 4.5 times more likely than the older generation to share their data with third party providers, posing a mounting threat.
Reflected by a global trend in light of recent data security scandals, there is also major concern amongst Australian consumers around the security and privacy of their financial data, with nearly two-thirds (64 per cent) of respondents citing that as the main obstacle to sharing their financial data with third parties.
The majority (53 per cent) of respondents also said they don’t understand the potential benefits of open banking enough to grant third-party providers access to their data, while almost half (47 per cent) said they don’t think open banking will deliver enough value to change their banking behavior. These figures indicate that wider consumer education on the potential advantages of the new system and on the security of their data is required, from both the regulators and the banks.
Banks in Australia have a significant opportunity to build on their foundation of traditional trust and provide the seamless digital experience that customers want, and that open banking enables, particularly as a growing number of young customers focus on convenience and speed.
Being an “open bank” means operating like a platform company, with a core business model that intertwines people and processes with assets and technology. Outside of the banking domain, technology industry leaders like Google, Apple, Facebook, Amazon and Alibaba are already developing platform-based business models by offering consumers seamless digital experiences.
The onus is now on banks to implement open banking services and strategies without alienating their traditional customers.
With the regulations now one year out, there is major work to be done to their core infrastructure and digital architecture. Banks must act quickly to turn open banking to their advantage, or risk losing market share to the fintechs and technology companies who will be hot on their heels.
The views expressed are those of the author and do not necessarily reflect those of the Westpac Group. This article is general commentary and it is not intended as financial advice and should not be relied upon as such.
By Michael Bennet
Editor, Westpac Wire