Even before the Covid-19 pandemic, research by The Economist revealed how retail banks are adapting, with open banking and digital banking becoming key strategic priorities globally.
Of those surveyed, 41% saw their business models evolving to become true digital ecosystems, with 28% also expecting to become an aggregator of third-party banking and/or non-banking products, alongside providing their own products. Interestingly, 36% said their top innovation strategy focused on building greenfield digital banks, as part of their wider focus on digitisation, open banking and fintech partnerships.
The research also found that banks see new technologies like AI, machine learning and blockchain, alongside regulation on digital technology and data protection, as having the biggest impact on the sector, both in the short and longer term.
Covid-19 is accelerating digitisation and the need for personalised customer experiences
The socio-economic impacts of the Covid-19 pandemic mean that more and more customers, including small and medium sized enterprises (SMEs) need rapid, bespoke support. For organisations, that means having an in-depth understanding of a customer’s financial health, affordability and creditworthiness, and being able to provide the personalised response they need.
In parallel, the pandemic is also driving the move towards a more digital world. Research by McKinsey highlighted a 10%-20% rise in digital banking use across Europe in April, making it even more important for organisations to fully embrace digital channels.
To survive and thrive, organisations will need to innovate and grasp new opportunities, while understanding the risks and challenges involved. The disruption to the economic landscape this year has led to changes in consumer spending – organisations need to be able to adapt and innovate quickly in this evolving landscape.
Data is key to understanding your customers like never before
Every financial transaction generates data, giving organisations a hugely valuable resource right under their nose. Before open banking, very few organisations could make use of it, but the democratisation of data is transforming the landscape.
The value of data lies in being able to extract the insight you need to make the best decision, often in seconds. Traditionally, data has been owned and managed by IT departments, but with data insight needed to drive every decision, data is becoming democratised within organisations too.
New data sources including open banking are giving organisations access to rich, up-to-date information, but to make the most of it in these challenging times, businesses will also need to embrace advanced analytics tools capable of connecting disparate datasets with customer-mapped data aggregation.
Digital technologies, data and advanced analytics are the means, but it’s important to remember they’re not the end goal in themselves. The end goal is being able to thrive in a digital, rapidly-changing world with customers expecting ever-more personalised experiences. That demands a clear strategic vision for what digital transformation means bespoke to your organisation, and your customers.
- Take a step back and look at the customer experience and your ideal customer journey. What data do you need in place to do that?
- What data assets are you using in your decision making, and what data assets do you want to use? What data will add value to help you make more accurate decisions?
- Pick a flexible tool that allows you to add and evolve your data and decision making.
- Let technology support your decisions. It can predict, inform and score customers accurately using data based on your lending rules.
If you’re looking to extract valuable insights from combined data sets to help you make more intelligent strategic decisions, then get in touch. Our experienced consultants will work with you to understand your business goals and help you accomplish them faster than ever before.
Open data and open banking – what does the future look like?
Open banking has given organisations a way to gain customer consent to access and then interpret the right financial data, to offer the right support at the right time, alongside personalised products and services including money management tools for example.
In a new era of digital banking in the post-Covid-19 economy, personalisation has taken on a new urgency, with consumers wanting fast, flexible, tailored support, and organisations needing a rapid, in-depth understanding of individual customers’ affordability and creditworthiness.
The challenges and opportunities of open banking
In a holistic, open data world, the volume and variety of data available can help you personalise your products and services, while making your credit decisions fairer and more accurate. That’s a huge opportunity for businesses, but it’s also a challenge.
Consumers expect a fast, personalised, seamless, multichannel customer experience, but they also want to know their data is safe, secure and won’t be shared without their explicit consent. Compliance is also key of course, with regulatory pressure to improve transparency and protect consumer privacy.
Without the right analytics expertise, technology and quality control, the data opportunity can turn into a data liability, especially with more and more data being generated all the time.
The solution lies in designing digital services around customer needs, as many of the new open banking-enabled financial services demonstrate. Transposing existing services into the digital environment is no longer enough. What’s needed is a more radical approach that puts customers’ needs and experience first, even if that requires significant change to your operational culture, technology infrastructure and policies.
Anything that stands in the way of this kind of transformation, from inflexible legacy systems and processes, to unconnected data silos and service channels, should be considered as challenges that need to be addressed and overcome.
Trust and control
You must build consumer trust by being transparent and by using data effectively, securely and within the constraints outlined by each customer. Therefore, having access to effective control mechanisms – ones which can manage the millions of different boundaries of consent – will be crucial.
The value exchange
The well-reported value exchange is still pertinent. While our research shows people are more accepting and more aware of the benefits of sharing their data, you must still demonstrate value to gain, and keep, their consent.
In an open banking world, data is shared with the organisations customers choose to share it with. Being able to mobilise data in and out of your organisation effectively will be key to enhancing customer relationships.
Technology and innovation
Data sharing goes beyond simply providing access – it begins with putting the right standards and technology in place. With the right tools to intelligently use consumer data of this volume and variety, the potential for innovation is huge.
Artificial intelligence and machine learning
With the help of artificial intelligence and machine learning you can make fine-tuned decisions on the spot. Rather than pushing each product or service individually, it’s possible to say, ‘let’s identify the customer, understand the customer, and then make the decision.’ Businesses need to move from a brand or product approach to a customer centric approach. This will enable a business to have informed, relevant, personalised conversations with their customers.
Convenience is king
Speed and convenience are the keys to success in many digital experiences for both consumers and businesses. Combining speed and convenience with a worthy value exchange and you have the ingredients for a winning proposition.
How open banking is driving innovation
Here’s three ways Experian are using open banking to help their customers and drive innovation.
1. Helping customers to reduce their debt
For example, by using Experian Affordability Passport (powered by Experian’s open banking service), CreditFix are now able to make more informed decisions on a customer’s capacity to resolve their debt quickly.
CreditFix, the UK’s largest personal insolvency provider, chose to partner with Experian to deploy its Affordability Passport Service. The service allows a customer to consent to share their credit information and bank transaction data with Credit Fix automatically. This information is used to help a Credit Fix Debt Advisor accurately assess an individual’s financial circumstances, provide advice on how to modify their behaviour, and re-organise their finances to resolve their debt.
Prior to adopting Experian’s services CreditFix advisors would interview customers and collect information manually by interviewing a customer or by sharing of paper-based copies of the credit and bank statements. The process was inefficient and would often result in an accurate and incomplete picture of a customer’s financial status. Using Experian’s Affordability Passport a customer can share their information safely and securely.
The speed and simplicity of Experian’s service reduces the time taken to source information and greatly reduces the stress that a customer incurs having to compile and share their personal financial information. Since deploying the Affordability Passport data collection has been automated and the time taken to collect a customer’s financial information has reduced by 80% from 40 to 10mins.
2. Helping businesses make credit decisions with less risk and at greater speed
Open banking is driving innovation to help both consumers and businesses alike. Through the launch of Experian Boost, there’s the potential to fundamentally change credit scoring by offering unparalleled insight, accuracy and transparency by using open banking data.
Consumers can benefit from Experian Boost by being able to instantly boost their Experian Credit Score by adding information to their credit report about everyday financial transactions such as Council Tax payments, Netflix and Spotify.
Experian Boost will also help lenders make more informed credit decisions by using the new boosted Experian Credit Score, without having to collect, manage or integrate the data themselves.
3. Helping our commercial customers lend to small businesses
Commercial customers are no different to consumers. Through Experian Commercial Acumen we help our commercial customers lend to small businesses more quickly, more easily and more cost effectively.
Experian Commercial Acumen uses our Open Data Platform to combine credit, bank transaction information and management account data in seconds. With a single view of what a small business can afford, lenders can make the right lending decisions straightaway, without the hassle and cost of integrating multiple data sources themselves. The breadth and depth of this data means lenders are better equipped to understand their end-customers’ finances. They can speed up loan applications for small businesses and make faster decisions based on accurate, personalised insights.
Open banking as a stepping stone to open finance
By opening APIs and removing the barriers to accessing financial data, open banking has enabled companies of all sizes to focus on creating innovative new products and challenging the status quo.
Open banking users are predicted to double by 2021, with around 40 million people around the world choosing to aggregate their bank accounts and access new services. It’s possible that the Covid-19 pandemic is fuelling this trend, increasing the need for consumers to have a single view of their finances and take control of their financial health.
Globally, the open banking market is expected to reach $43.15 billion by 2026. Those organisations who invest in data aggregation and advanced analytics as part of their digital transformation will be able to monetise open data and offer a more customer-centric banking model.
Beyond the PSD2 regulation, open banking is driving open finance – an industry-led initiative looking to increase the scope of financial data sharing beyond payment accounts.
Fintech expert, Rishi Chauhan, believes that opening up non-payment customer account data, such as data from savings, mortgage and investment accounts, would unlock far more fintech products and services for customers. Chauhan also highlights the need for open finance to be commercially-driven, as well as regulatory, enabling financial institutions to create and support the infrastructure needed to expand and optimise data sharing.
A further example of the development in the opening up of data is that of the government’s Pension Dashboard which will enable a person to see all their pension savings in one, complete place. Experian provided guidance and support in the original POC (proof of concept) for the Pensions Dashboard and are now working with Origo and other providers to help bring this to market. Our data pinning technology will help to create a single, integrated view of a customer’s pension provision.
Open banking – data security and agility
For financial service providers of all sizes, one of the biggest risks associated with open banking is data security, including the loss or theft of personal data, fraudulent transactions and data protection breaches. As a regulatory initiative, open banking places great importance on the protection of personal data and has safeguards built in, but organisations have a key role to play too.
It goes without saying that any technology must come with security built in. As legacy systems often demonstrate, architecture designed at a time when data wasn’t so open and so vast, and when hacking wasn’t as sophisticated as it is today, can leave businesses vulnerable to security issues. By outsourcing your technology requirements to a cloud-based solution you can access a continually enhanced platform that can be quicker to respond to emerging threats.
Building your digital platform on open technologies, also means you can quickly implement anything and everything from biometric security and email verification solutions, to voice recognition commands for initiating account login or transactions. All of these make digital services better for customers – as well as providing significant security and cost-saving benefits for your business. For example, the Experian Open Data Platform (ODP) has a repository of over 150 API endpoints that can connect to numerous data sources. This can be used to power digital services by providing access to demographic, lifestyle, financial and non-financial product information with consumer consent.
The future of open banking
It’s clear that digital banking is here to stay. In some markets, that means balancing regulatory compliance with customer-led innovation, but here in the UK, open banking has brought the two together. The Economist’s survey of retail banking globally suggests a regulation-led model is likely to dominate future developments as:
“Regulators understand the importance of customer data security and financial infrastructure resilience.”
Beyond regulation and government initiatives such as the National Data Strategy (NDS), the future of open banking and open finance, will be driven by technological advances including cloud, AI and 5G, alongside the need for truly responsive, personalised customer experiences. Having the right data aggregation and advanced analytics tools in place to make sense of multiple data sources and understand what experiences customers really want is the key to reaping the benefits of open banking while managing the risks.
How can Experian help?
Experian is innovating to help you harness the open data opportunity.
- Experian is helping financial services companies around the world to accelerate their digital transformations and to create great digital experiences for their customers. Our capabilities range from consultancy to help companies deploy strong data governance policies, to technologies that integrate systems and data, and automate decision making to speed up the customer experience.
- We’re leading the way with open data, driving value for our clients and consumers. Open data means we can introduce new services such as affordability checking tools, personal finance management and recommendation engines. The Experian Open Data Platform (ODP) has a repository of over 150 API endpoints that can connect to numerous data sources. This can be used to power digital services by providing access to demographic, lifestyle, financial and non-financial product information with consumer consent.
- A combination of Experian’s Bureau data and Open Banking service gives an accurate and quick view of a customer’s credit commitments, to drive fair and sustainable outcomes. Transaction data provides new depth of detail that enables you to personalise services in response to consumer or business financial wellbeing. This has been particularly valuable in the Covid-19 crisis where our bureau and open banking data has revealed the impact of income shock, emergency payment holidays and reduction in earnings on consumers and businesses.
- Categorisation of personal or business bank transaction data in real time to identify sources of income, and patterns of spending behaviour. Covid-19 has illustrated the power of categorisation to reveal sudden changes in a consumer’s financial health including loss of or reduction in income, frequency of overdraft use, reduction in disposal income, and increase in spend on essential items such as groceries.
- With digital money services that combine credit information with bank transaction data and other sources of financial data (such as savings, pension and investments) you can create a more holistic understanding of a customer’s financial life. These can be used to provide insight on an individual’s behaviour which can be used as triggers to help them manage their money or find better value products and services.
To see how Experian can help your company to put the individual at the heart of your affordability decisions contact us.