The Future Of Financial Services: Developing Your Open Banking Strategy

Open banking is reshaping our entire financial services industry through more competition, financial inclusion and ending the era of direct debits.

Going back a few years, many in financial services would never have imagined the breadth of change open banking would deliver. Thanks to innovation in technology, the banking industry can give its clients an enhanced experience with the financial services they receive occasionally or regularly. Ultimately, open banking can improve the way financial services are used and accessed.

From money management and paying online to significantly cheaper rates, the way we bank and even take out loans is on the path to changing forever. Open banking is still in its infancy, but the numbers don’t lie. According to a recent report by Polaris Market Research, open banking is expected to reach a valuation of $128.12 billion by 2030. Additionally, Finastra’s “Financial Services: State of the Nation Survey 2022” revealed that 56% of surveyed U.S. citizens indicated open banking as a “must have,” up from 45% in 2021.

When looking at open banking payments, the power comes through the use of application programming interfaces (APIs), which enable third parties to bypass traditional intermediaries and replace them with more innovative technology.

The Beginning Of Open Banking

Mandated in the U.K. in 2018, open banking was born out of a regulatory change called the European Union’s Payment Services Directive (PSD2), which required banks to put the power back into the hands of customers by requiring banks to open up access to their data to third parties.

By allowing trusted third-party providers access to consumer banking information such as past and current transactions, consumers can have greater control over their personal finances while also receiving quick insights into spending habits.

Even though it might not be mandated in other countries across the world, market forces combined with a world where things are changing at a rapid rate have positioned open banking as a revolution in financial services. One of the main drivers for its widespread implementation is increased competition leading to wider offerings of financial products.

We are also starting to see fintech disruptors being bought up by banks and other financial services companies and absorbing the function internally. Examples include Apple acquiring Credit Kudos last year, positioning the tech giant to enter the lucrative “buy now, pay later” space, and Visa acquiring the open banking platform Tink.

The Need For Open Banking Today

The way in which the world has changed accelerated during the pandemic. What would have taken a few years happened overnight: Rates of online shopping and people accessing mobile banking increased in ways previously thought impossible.

If we look at the friction within the retail industry as an example, there is the potential that the customer will be lost. Traditional checkout methods come with the sort of friction that ends in cart abandonment, loss of sales and customers ultimately taking their business elsewhere.

What open banking delivers is user experiences that match modern-day shoppers’ needs and habits. And in a time where cash flow is imperative to the survival of businesses, making sure that there are as few steps as possible without sacrificing security has to be at the forefront of every retail business strategy.

These benefits provide the perfect segue to open finance, which is poised to usher in an era where customers will be able to use their data in ways that give them the most applicable and competitive financial products and services in the market in real time.

Developing Your Open Banking Strategy

If you’re a traditional financial institution, you may be inclined to view open banking as a threat. Instead, think of it as a tool that can help you to expand your client base and make them loyal to your company and services. At the same time, tech startups in the banking industry should guarantee traditional banks smooth and mutually beneficial collaboration.

When creating your open banking strategy, I’d advise you to consider and include the following actions.

Do the research and be flexible to customers’ demands.

Today, bank customers expect to have instant access to necessary financial services. To help ensure customer loyalty, it is important to keep up with emerging trends and include them in your open banking product.

Upgrade your legacy.

If you’re a traditional financial institution, you very likely have a massive legacy platform. Even though you have trusted this system for many years and don’t want to change it, one day you’ll have to—and with open banking being all about new technologies and innovations, the sooner, the better.

Create your own custom API.

Instead of partnering with fintech startups, you can create your own solid open banking solution and launch a new product on the market that can empower your financial establishment.

Collaborate only with trusted partners to ensure data safety.

Your and your clients’ data safety must always be a top priority. Even though open banking is fairly considered to be as safe as traditional banking, you still need to develop ways of protecting customers from sharing their personal data with shady third parties that look like reliable APIs.

Make your financial products top-quality.

As a digital product, open banking typically doesn’t include a human element. There’s no personal manager sitting in a local branch a client can go and talk to, which is why customers will judge your product based on app convenience, simplicity, speed of transactions, data safety and other crucial aspects.

Consult with tech experts.

If you’re not engaged in the IT industry, it will be best to consult with trusted tech experts on building your open banking platform or even outsource the entire product development process to professionals with solid, relevant expertise.

The banking industry has evolved, and open banking is such a powerful tool for making all kinds of financial services available to every person with a smartphone. By following these tips, you can be best positioned to embrace this innovative technology.

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