Banking 2.0: Why customer obsession and open banking go hand in hand?

The financial segment has rarely seen a domain as competitive as banking. Over the years, banks have moved ahead from just offering traditional deposit and withdrawal services to providing additional facilities like loans, credit cards, remittances, refer and earn program and advisory services.

However, much more needs to be done if banks are to survive in the digital era. With the rise of the informed customer, banks need to transition from customer-focused to customer-obsessed. It has already been established that a great customer experience is more than a 'nice to have' for customer-obsessed banks; it's a profit driver and a source of long-term value for shareholders. Clearly, customers' loyalty and long-term connections offer the finest foundation for future success.

Pivoting to a customer-obsessed culture

Traditional banking operations were too product-focused, leading to siloed processes. This resulted in the customer journey becoming fragmented, without clear end goals. As banks move towards customer-centricity, their focus should not be on just selling the product. They should provide the right solutions to the existing problems of the customers and provide value to them in the long term. 

A customer-obsessed bank can start by rethinking the customer journey to align with the aspirations and expectations of consumers. To do so, the bank can dig into the gold mine of information that is customer data. By leveraging this data, banks can identify pain points and buying triggers, create buying outcomes and eliminate constraints like lack of information or time limits.

This is making banks experiment with concepts like open banking. The idea behind the concept is to improve the customer experience by leveraging integrated systems.

What is Open Banking?

The rise of fintech has been phenomenal in recent years, making traditional banking systems redundant. It is expected that the global fintech market will grow at a CAGR of 23.58% between 2021 and 2025.

Banks can use the power of open banking to compete with both small and large fintech players. Open banking is an agile framework that brings a multitude of benefits. An open banking system leads to direct transactions between customers and third-party businesses. As a collaborative approach, banks can enable cross-platform payments. Thus, banks can build better relationships with their partner organizations and create mobile-centric customer platforms. 

This concept involves sharing the financial and banking data of customers with third-party organizations. Banks offer this data to their partner organizations through Application Program Interfaces (APIs). There are no privacy concerns for account holders as they provide their consent.

Ultimately, the focus is on making the customer experience worthwhile. No wonder then, in a 2020 global banking survey conducted by The Economist Intelligence Unit, open banking was a top priority for almost one-third (32%) of the respondents.

How is open banking a win-win situation for customers?

With the help of open banking, established players and new intermediaries can provide significant benefits to consumers by consolidating their financial products in one location, providing fresh insight into spending patterns, generating money-saving recommendations, automating elements of the decision-making process, and even introducing new methods to pay. Thus, some of the benefits of open banking for consumers are: 

• Offers more choices: Banks usually have the same set of services for all their customers. Open banking allows them to experiment and give personalized offerings from various service providers.
• Enables payments on the go: Open banking APIs make it possible for users to pay from their mobile phones at any time and anywhere. There is no need to visit a physical store or carry hard cash when purchasing anything.
  Digital payments were already up by 30.2% in FY21, according to RBI. This trend shows the growing importance of apps like PayTM and Google Pay, made possible by using open banking.
• Makes remittance and foreign exchange transactions easier: The pace of global migration has increased significantly in the years. Though the coronavirus pandemic slowed things, it does not spell the end of this trend, since countries are opening up again and lifting restrictions. Consequently, money will start flowing between migrants and their families back home. Money transfer and remittance services by banks were always slow and expensive. The rise of fintech is helping overcome this problem. Third-party services offered by banks, as part of open banking, provide a seamless way for anyone to send or exchange money quickly and at a low cost.
• Enables personalized offerings for customers: Open Banking makes it possible for banks to offer customized services to customers. For example, if paying bills remotely is a priority for someone, they can access the related services right on their mobile app.
  

Benefits of open banking for banks

With the help of open banking, the financial industry as a whole is adopting a hyper-relevant, platform-based distribution model. For banks, this means a chance to expand their ecosystems and reach. Here are some of the benefits that banks can hope to achieve by embracing open banking.

• Increased collaboration: The collaborative approach enables banks to remain highly competitive in their space. They can partner with relevant third-party businesses that align with their goals and help them succeed.
• Better customer engagement: Banks can engage with their customers better by understanding their needs in a holistic manner. Customers are more likely to trust an institution that helps them manage their finances better.
• Increased fraud prevention: Frauds can be in multiple forms, including identity theft and unauthorized use of credit cards. Access to real-time data, combined with Machine Learning tools, help banks overcome this problem.
• Better workforce management: Banks can assign their staff to monitor high-risk customers with the help of open data. It helps them prevent bad debts and use resources efficiently.
• Enhanced agility: Open banking provides banks with heightened digital agility, increasing their capacity to react to change and implement solutions quickly. Open banking removes obstacles to communication and collaboration for banks, allowing them to adapt their business models more effectively.

Conclusion

While it's possible that compliance is driving banks to invest in open banking, there's no denying that the movement offers a slew of other financial benefits. The customer lifetime value is raised due to many of these benefits, such as immediate improvements in customer happiness and digital agility, enhanced security, increased collaboration opportunities. Ultimately, it allows banks to make bigger bets with their financial products and services.

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