A series of open banking use cases
The financial services industry is changing fast. New industry entrants, shifting customer behaviors and ever-evolving digital solutions have created a new landscape that financial institutions have to contend with. And in the past year, the coronavirus and its impact have only accelerated this change.
Open banking – a practice that allows third-party financial service providers open access to consumer banking – is at the forefront of the industry’s evolution, as both a disruptor and a vehicle of opportunity for players of all shapes and sizes.
And open banking’s stock is growing fast. Sixty-one percent of financial executives feel more positive toward open banking than they did in 2019, and investment in open banking opportunities is significantly on the rise.
However, given the fast-moving nature of open banking, it’s still shrouded in confusion. Forty-six percent of financial executives, for instance, aren’t confident that the benefits of open banking are widely understood within their organizations.
Given this uncertainty, we’ve put together a series of articles outlining different business use cases enabled by open banking, and the benefits they offer to both end-customers and financial institutions.
PFM as an open banking use case
The global health crisis has certainly shone a light on individuals’ financial fitness. More than ever, people are looking to take control of their finances, and they want to use mobile or online apps to do so. In 2020, the number of digital banking users was 2.4 billion. And that number is predicted to rise to 3.6 billion by 2024 – a 54 percent increase. It goes without saying that the importance of mobile banking for the financial services industry is only going to increase.
For banks, this level of digital engagement has incredible potential. It allows them invaluable insights into their customers, which they can leverage to create more personalized products and services, therefore increasing retention and ultimately increasing revenue.
However, financial institutions’ (FIs) ability to harness this potential currently leaves much to be desired. According to a KPMG study, 63 percent of CEOs in the banking sector admit their understanding of their customers’ needs to improve significantly. Without leveraging the right data to personalize their offerings, current mobile banking apps aren’t bringing enough value to their users.
Open banking-enabled PFM allows FIs to go beyond just their own mobile banking and online apps. By cross-referencing account data with third-party data, banks can access a larger swathe of customer data and use it to create real-time insights that are personalized to their individual customers’ needs.
For a customer, this means FIs can provide them with a complete picture of their financial health, tailored advice to help them along their financial journeys and great tools to help them better manage their money.
Data-driven insights for customers
Open banking-enabled PFM solutions provide customers with a single digital app where they can access all their financial data for personal wealth management purposes. PFM apps are also often able to provide customers with actionable insights to help them improve their financial health. For example, sending balance notifications to help them keep track of their immediate financial position, sending alerts after suspicious activity, and offering personalized financial advice.
Some great examples of PFM in action include:
- DABOX – Awarded as “Best App” at the 2019 European Excellence Awards, DABOX was launched by Portugal’s leading bank, Caixa Geral de Depósitos. It allows users to set financial goals, create budgets and get personalized insights into their spending.
- Grip – The #1 PFM app in the Netherlands, Grip has over 750,000 downloads. It automatically creates an overview of users’ subscriptions and fixed expenses.
Dominance over PFM and multi-banking apps is becoming an increasingly valuable prize in the financial services market. As more and more customers migrate to a single app to monitor all their finances and accounts, plenty of FIs are striving to onboard and sign up as many people as possible, and keep them there.
It should go without saying that the rewards for higher engagement with customers are substantial. More customers using an FI’s app mean greater brand recognition and customer retention, an important driver of revenue. According to research by Hubspot, it can cost up to 25 times more to acquire a new customer than to retain an existing one.
Furthermore, higher engagement provides FIs with more data, meaning they can create new financial services and finetune their existing ones.
Of course, competition to create an engaging and market-leading PFM app is fierce, with big tech companies such as Google entering the fray. FIs need to ensure they’re leveraging data as best they can to produce high-quality offers that really resonate with users.
A high volume of engaged customers also allows FIs to cross-sell a wider catalog of products to their app’s users, an incredibly effective way to increase revenue. Research has shown that the probability of selling to an existing customer is between 60 and 70 percent, versus 5 to 20 percent for new prospects.
By leveraging data and insights, and building holistic profiles of their customers’ financial situations and needs, open banking-enabled PFM allows FIs to push a wide range of products, driving up revenue across the board.
For instance, a bank could suggest a personalized home insurance offer for a current account holder, based on insights on their existing insurance package and financial health.
Leveraging the power of open data
The current health crisis has highlighted how customers now, more than ever, require personalized, digital help with their finance management. FIs that are able to provide this stand in good stead to attract new customers, increase retention among their existing ones and boost revenues across their entire operations. Being part of an open banking ecosystem is critical in creating this experience, ultimately resulting in a win-win situation for FIs and their customers.